FPIs withdraw ₹28,200 crore from Indian equities amid election uncertainty
What's the story
Foreign portfolio investors (FPIs) have pulled out a significant ₹28,242 crore from Indian equities this month (till May 17).
This substantial withdrawal is attributed to uncertainties surrounding the general elections.
Additionally, the attractive valuations of Chinese markets have also played a role in this significant market shift.
This move crosses the net pullout of over ₹8,700 crore in April.
Market forecast
Experts predict potential inflows post-election stability
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, suggests that political stability post-elections could attract significant inflows into India.
Similarly, Karthick Jonagadla, Manager and Founder of Quantace Research, projects a strengthening of FPI inflows into India after the elections.
This prediction is based on the possible easing of interest rates by the US Federal Reserve, and India's rising weight in the MSCI Emerging Markets Index.
Market reallocation
Reallocating funds to China
FPIs are shifting funds to China due to their lesser valuations compared to Indian stocks, as highlighted by Anirudh Naha, CIO-Alternatives of PGIM India Asset Management.
Vijayakumar attributed the main trigger for FPI selling to the outperformance of the Hang Seng, which climbed by 19.33% last month.
Vipul Bhowar, Director of Listed Investments at Waterfield Advisors, also links FPIs's withdrawal to the ongoing geopolitical crises in the Middle East, and the strength of US bond yields.
Investment shift
FPIs invest in debt market despite equity outflow
Despite the substantial outflow from equities, FPIs have invested ₹178 crore in the Indian debt market during the same period.
Bharat Dhawan, Managing Partner of Mazars in India, notes that economic challenges and geopolitical tensions have made investors cautious.
This caution has led to a rise in the volatility index 'India VIX' in recent sessions, indicating increased selling pressure on most indices.