August saw a persistent sell-off by foreign investors in the Indian equities markets, unloading shares valued at Rs 21,201 crore as a result of the termination of the yen carry trade, US recession worries, and ongoing geopolitical tensions. According to data from the depositories, this followed inflows of Rs 26,565 crore in June and Rs 32,365 Cr in July. In these past two months, foreign portfolio investors (FPIs) have poured money into the market with the hope of long-term economic expansion, ongoing reform initiatives, an above-average earnings season, and political stability. Prior to that, FPIs withdrew around Rs 8,700 crore in April due to worries regarding a change in tax treaty of India with Mauritius & a persistent increase in US bond yields, and they withdrew Rs 25,586 crore in May due to election anxiety.
Risk Aversion & Market Volatility
Data from the depositories indicated that FPIs have put in Rs 14,364 crore in stocks so far this year. A mix of domestic and international factors contributed significantly to the August FPI outflows. “Risk aversion and market volatility were caused by concerns about the unwinding of the Yen carry trade, a possible global recession, ongoing geopolitical conflicts, and slowing economic growth,” stated Vipul Bhowar, Director of Listed Investments at Waterfield Advisors.
The relaxing of the Yen carry trade following the Bank of Japan’s interest rate increase to 0.25 percent was what started the outflow. Domestically, some FPIs may have decided to book profits after a robust advance in the preceding quarters, having been net purchasers in June and July. Furthermore, Bhowar noted that Indian shares are now less appealing due to inconsistent quarterly results and comparatively higher valuations. The post-budget announcement of a higher capital gains tax on equities investments, according to Associate Director, Manager Research, Himanshu Srivastava, Morningstar Investment Research India, has significantly fueled this selling frenzy.
Global Economic Worries
Furthermore, he said, FPIs have been wary because of the high prices of Indian stocks in addition to other global economic worries like growing recession worries in the US due to poor jobless data, ambiguity surrounding the schedule of interest rate cuts, & the unwinding of the yen carry trade. The continued selling by FPIs through the exchange while they continue to invest via the ‘primary market & others’ category is a notable trend in FPI flows that started to emerge in August. The disparities in valuations are the cause of this variation in FPI behavior.
“Primary market issues are valued at somewhat lower levels, while secondary market values are still high. Accordingly, FPIs purchase securities at fair valuations and sell them when secondary market valuations become inflated, according to Chief Investment Strategist at Geojit Financial Services, VK Vijayakumar. However, FPIs have already made Rs 9,112 Cr in debt market investments since August. As a result, the total for 2024 is now Rs 1 lakh crore.
