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Foreign investors have pulled out a massive ₹22,000 crore from Indian equities so far this month, due to uncertainty surrounding the outcome of the Lok Sabha elections and outperformance of Chinese markets.

This came following a net outflow of over ₹8,700 crore in the entire April on concerns over a tweak in India’s tax treaty with Mauritius and a sustained rise in U.S. bond yields. Before that, FPIs made a net investment of ₹35,098 crore in March and ₹1,539 crore in February.

Going forward, as clarity emerges on the election front, Foreign Portfolio Investors (FPIs) are likely to buy in India, since they cannot afford to miss the post-election results rally.

Actually, the rally may begin even before the election results, V.K. Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.

According to data with depositories, Foreign Portfolio Investors (FPIs) witnessed a net outflow of ₹22,047 crore from equities this month (till May 24).

“This heavy selling was triggered by the massive outperformance of Chinese stocks. The Hang Seng index, dominated by Chinese stocks (FPIs invest through the Hong Kong market since there are restrictions on investing through the Shanghai market) surged 7.66% during the last month,” Mr. Vijayakumar, said.

The election-related jitters, too, might have influenced FPI selling.

With the on-going general election in the country and the uncertainty surrounding its outcome, foreign investors at this point are wary to enter the Indian equity markets before the announcement of election results, Himanshu Srivastava, Associate Director — Manager Research, Morningstar Investment Research India, said.

“In recent times, the U.S. Fed has indicated that it would not go ahead with rate cuts until inflation cools and consistently moves towards the target range. This has raised scepticism over the possibility of an early rate cut.

“It led to the appreciation in the U.S. Dollar leading to a surge in U.S. Treasury yields. This doesn’t augur well for the emerging markets like India, as under such scenario investments also tend to shift from riskier assets like emerging market equities to more safer asset classes such as U.S. Dollar and U.S. Treasuries,” he added.

On the other hand, FPIs invested ₹2,009 crore in the debt market during the period under review.

Before this outflow, foreign investors put in ₹13,602 crore in March, ₹22,419 crore in February, ₹19,836 crore in January. This inflow was driven by the upcoming inclusion of Indian government bonds in the JP Morgan Index.

“The long-term outlook for FPI flows into Indian debt is positive due to India’s inclusion in global bond indices. However, near-term flows are being impacted by global macroeconomic uncertainty and volatility. The trend will reverse once the interest rate outlook becomes clearer,” Vipul Bhowar, Director, Listed Investments at Waterfield Advisors, said.

JP Morgan Chase & Co. in September last year announced it will add Indian government bonds to its benchmark emerging market index from June 2024. This landmark inclusion is anticipated to benefit India by attracting around $20-40 billion in the subsequent 18 to 24 months.

Overall, FPIs have withdrawn a net amount of ₹19,824 crore in equities in 2024 so far, however, invested ₹46,917 crore in debt market.

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| Photo Credit: The Hindu

Foreign investors pulled out a massive ₹17,000 crore from Indian equities in the first 10 days of the month owing to general election and the uncertainty surrounding its outcome coupled with expensive valuations and profit booking.

This was way higher than a net withdrawal of ₹8,700 crore in the entire April on concerns over a tweak in India’s tax treaty with Mauritius and a sustained rise in U.S. bond yields.

Before that, FPIs made a net investment of ₹35,098 crore in March and ₹1,539 crore in February. Looking ahead, post-general elections, corporate India’s strong financial performance in Q4 FY24 is anticipated to be rewarded.

While FPIs may adopt a cautious stance until the election results are clear, favourable outcomes and established political stability could see their return in significant numbers, Trivesh D., COO at Tradejini, said.

According to the data with the depositories, Foreign Portfolio Investors (FPIs) experienced a net outflow of ₹17,083 crore in equities this month (till May 10).

There are multiple reasons behind this aggressive selling by FPIs. With the ongoing general election and the uncertainty surrounding its outcome, investors are wary to enter the markets before the election results, Himanshu Srivastava, associate director – manager research, Morningstar Investment Research India, said.

Also, with Indian markets trading at relatively high valuations, many investors would have found this as an opportunity to book profit and wait until more clarity emerges on the country’s political landscape, he added.

“Given the current political uncertainty in India and with US interest rates still appealing, FPIs have shifted to a risk-off mode,” Krishna Appala, smallcase manager & senior research analyst at Capitalmind, said.

Another reason could be profit booking by FPIs in anticipation of a market correction, particularly around results day, Tradejini’s Mr. Trivesh said.

On the global front, the U.S. Fed has indicated no rate cuts until inflation cools, thus raising scepticism over the possibility of an early rate cut. It led to the appreciation in U.S. dollar leading to a surge in U.S. Treasury yields.

On the other hand, FPIs withdrew ₹1,602 crore from the debt market during the period under review.

Before this outflow, foreign investors injected ₹13,602 crore in March, ₹22,419 crore in February, ₹19,836 crore in January. This inflow was driven by the upcoming inclusion of Indian government bonds in the JP Morgan Index.

JP Morgan Chase & Co in September last year announced it will add Indian government bonds to its benchmark emerging market index from June 2024.

This landmark inclusion is anticipated to benefit India by attracting around $20-40 billion in the subsequent 18 to 24 months.

FPIs have turned sustained sellers and domestic institutional investors (DIIs) have turned sustained buyers in all trading days of this month, so far, with cumulative DII buying of ₹19,410 crore, V.K. Vijayakumar, chief investment strategist, Geojit Financial Services, said.

Overall, FPIs withdrew a net amount of ₹14,860 crore in equities in 2024 so far. They, however, invested ₹14,307 crore in debt market.

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Capital markets regulator Sebi on February 26 cautioned investors against fraudulent trading platforms, claiming to facilitate stock market access to Indians through Foreign Portfolio Investors (FPIs) route.

Sebi noted that fraudsters are enticing victims through online trading courses, seminars, and mentorship programs in the stock market, leveraging social media platforms such as WhatsApp or Telegram, as well as live broadcasts.

Posing as employees or affiliates of Sebi-registered FPIs, they coax individuals into downloading applications that purportedly allow them to purchase shares, subscribe to IPOs, and enjoy “institutional account benefits”— all without the need for an official trading or demat account, Sebi said adding that these operations often use mobile numbers registered under false names to orchestrate their schemes.

The cautionary statement came after Sebi received a number of complaints regarding fraudulent trading platforms, which falsely claimed affiliation with FPIs and claimed to offer trading opportunities through FPI or institutional accounts with special privileges.

Under the rule, FPI investment route is unavailable to resident Indians, with limited exceptions as outlined in the Sebi’s FPI Regulations.

Further, there is no provision for an “Institutional Account” in trading, and direct access to the equities market requires investors to have a trading and demat account with a Sebi-registered broker and depository participant respectively.

The regulator clarified that it has not granted any relaxations to FPIs regarding securities market investments by Indian investors.

Cautioning investors, Sebi has asked investors “to steer clear of any social media messages, WhatsApp groups, Telegram channels, or apps claiming to facilitate stock market access through FPIs or FIIs registered with Sebi. Such schemes are fraudulent and do not have Sebi’s endorsement”.