FPI ease selling streak in June as outflows decline to ₹3,064 crore in Indian equities; When will inflows resume?

Foreign portfolio investors (FPIs) have significantly reduced their selling streak in Indian equities this month after stability returned to Indian markets with a fall in the ‘VIX’ volatility index. FPIs reduced their buying momentum with the onset of the new fiscal 2024-25 (FY25). Volatility due to Lok Sabha elections 2024 and results, outperformance in Chinese markets, hawkish stance from central banks, and other global cues have weighed on the sentiments of foreign investors.

FPIs offloaded ₹3,064 crore worth of Indian equities and the net investment turned positive to ₹4,752 crore as of June 14, taking into account debt, hybrid, debt-VRR, and equities, according to National Securities Depository Ltd (NSDL) data. The total debt inflows stand at ₹5,703 crore till the second week of June.

‘’After the roller coaster ride in the market in the first week of June, stability has returned to the market as indicated by the sharp fall in India VIX from 27 on June 4th to 12.82 on 14th June. This fall in India VIX indicates the return of stability and a likely consolidation phase in the market,” said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

FPI activity in Indian markets

In May 2024, FPIs offloaded ₹25,586 crore worth of Indian equities, and the debt inflows stood at ₹8,761 crore. Uncertainty over the outcome of the Lok Sabha elections 2024, high US bond yields, high Indian market valuations, and the outperformance of Chinese stocks weighed on sentiments.

FPIs offloaded ₹8,671 crore in Indian equities in April and ₹10,949 crore in debt markets over high US bond yields. However, they pumped ₹35,098 crore in Indian equities during March 2024 – the highest inflows recorded in the first three months of 2024. FPI outflow initially declined in February 2024 until they were net buyers by the end of the month, despite high US bond yields.

The inflow into Indian equities stood at ₹1,539 crore in February 2024 and the debt market investment rose to ₹22,419 crore during the month on top of the ₹19,836 crore bought in January. The inclusion of government bonds to JPMorgan and Bloomberg debt indices had especially triggered foreign fund inflows into debt markets. FPIs turned massive sellers in January 2024 snapping their buying streak as investments saw a sharp uptick in December 2023 after they reversed their three-month selling streak in November 2023.

However, inflow intensified in December on strong global cues after the US Federal Reserve signalled the end of its tightening cycle and raised expectations of a rate cut in March 2024. This led to a crash in US bond yields and triggered foreign fund inflows into emerging markets like India.

For the entire calendar year 2023, FPIs bought ₹1.71 lakh crore in Indian equities and the total inflow stands at ₹2.37 lakh crore taking into account debt, hybrid, debt-VRR, and equities, according to NSDL data. FPIs’ net investment in Indian debt market stands at ₹68,663 crore during 2023.