Foreign investors sold shares worth Rs 21,201 crore in the Indian equity markets in August due to the unwinding of the yen carry trade, recession fears in the US, and ongoing geopolitical conflicts. This followed an inflow of Rs 32,365 crore in July and Rs 26,565 crore in June, according to depositories' data.
FPIs had infused funds in these two months expecting sustained economic growth, continued reform measures, better-than-expected earnings, and political stability. Earlier, FPIs withdrew Rs 25,586 crore in May due to poll jitters and over Rs 8,700 crore in April over concerns about changes in India's tax treaty with Mauritius and rising US bond yields.
From August 1 to 17, FPIs withdrew a net amount of Rs 21,201 crore from equities. So far this year, FPIs have invested Rs 14,364 crore in equities, the data showed.
FPI outflows witnessed in August were mainly driven by a combination of global and domestic factors.
"Globally, concerns about the unwinding of the Yen carry trade, potential global recession, slowing economic growth, and ongoing geopolitical conflicts led to market volatility and risk aversion," Vipul Bhowar, Director of Listed Investments, Waterfield Advisors, said.
The outflow was triggered due to the unwinding of the Yen carry trade after the Bank of Japan raised interest rates to 0.25 per cent. Domestically, after being net buyers in June and July, some FPIs might have chosen to book profits following a strong rally in previous quarters.
Additionally, mixed quarterly earnings and relatively higher valuations have made Indian equities less attractive, Bhowar added. Himanshu Srivastava, Associate Director, Manager Research, Morningstar Investment Research India, said the post-budget announcement of an increase in capital gains tax on equity investments has largely fuelled this selling spree.
FPIs have been cautious due to high valuations of Indian stocks and global economic concerns, including rising recession fears in the US amid weak jobs data, uncertainty over interest rate cuts, and the unwinding of yen carry trade.
A notable trend in FPI flows, which became pronounced in August, is the sustained selling by FPIs through the exchange while continuing to invest through the 'primary market and others' category. This difference in FPI behaviour is attributed to the differences in valuations.
"The primary market issues are at comparatively lower valuations, while in the secondary market, the valuations continue to remain high. So, FPIs are buying when securities are available at fair valuations and selling when the valuations get stretched in the secondary market," said VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
On the other hand, FPIs invested Rs 9,112 crore in the debt market in August so far. This has taken the tally to Rs 1 lakh crore so far in 2024.