Foreign portfolio investors adopted a cautious approach and began selling assets in April after US bond yields surged. Sectors such as information technology, fast-moving consumer goods, and consumer durables witnessed outflows during the first half of the month.
The power, financial services, consumer services, and automobile and auto components sectors experienced inflows during the period, as indicated by data from the National Securities Depository Ltd.
Foreign portfolio investors kicked off the new financial year on a cautious note, investing a net of Rs 5,639 crore in Indian equities till April 22. However, foreign investors have sold Rs 244 crore in the first half, NSDL data showed.
This move comes amid heightened geopolitical tensions, reflecting a careful approach by investors even as the market continues to hit new record highs. Inflows have slowed from what was witnessed in February and March.
"The hotter-than-expected US inflation and the consequent spike in bond yield led to big selling in the Indian cash market," said VK Vijayakumar, chief investment strategist, Geojit Financial Services Ltd.
A major trend in FPI activity this month was that they turned sellers into debt after sustained buying for several months. "This is again the consequence of the rising US bond yields and the concern regarding rupee depreciation," he said.
"FIIs continued to remain risk-averse, a trend seen since last week. Global sentiment remains subdued due to a robust US economy and persistent inflation, dampening hopes of a near-term Fed rate cut. Mid and small caps saw weakness as Q4 earnings expectations remained muted," said Vinod Nair, head of research at Geojit Financial Services.
The delay in rate cuts and geopolitical tensions are prompting the sell-off by foreign investors, according to Ajit Mishra, senior vice president of research at Religare Broking Ltd. "We feel this will gradually fade away, and a positive surprise from the earnings may expedite the same."
Further, the majority of inflows that were expected for the election are already priced in, and the possibility of rate cuts may reverse the trend of outflows, Mishra said.
Also Read: FIIs Sell Equities Worth Rs 20,000 Crore In Five Sessions: Here's What Triggered The Selloff
Debt Market Activity
Foreign inflows in India's debt market turned negative in April for the first time in over a year, even as it awaits its global inclusions in the months to come. The month's net outflow comes as domestic stock markets scale new highs on positive macroeconomic factors.
Foreign investors sold Rs 6,174 crore during the period under review, according to NSDL data.
The inclusion of gilts in JPMorgan's Government Bond Index Emerging Markets is set to go live this June. This, along with the inclusion of Bloomberg's Emerging Market Local Currency Indices, is expected to pump in $40–50 billion inflows.
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