Foreign Portfolio Investors (FPIs) have shifted from sustained buying to net selling, withdrawing a total of INR 14,767 crore from Indian equities in September. The reversal in FPI sentiment can be attributed to several factors, including the appreciation of the US dollar, a steady rise in US bond yields, and a spike in crude oil prices.

Uncertain Outlook for FPI Flows: The future of FPI flows into India remains uncertain, contingent on various factors. These include the performance of the Indian economy, the Reserve Bank of India’s (RBI) October monetary policy decisions, and the outcomes of the September quarter earnings reports, as noted by Mayank Mehra, Manager and Principal Partner at Craving Alpha.

September’s FPI Outflow: According to depository data, FPIs sold shares amounting to INR 14,767 crore in September. This followed a four-month low in FPI investments in August, with INR 12,262 crore. Prior to this outflow, FPIs consistently bought Indian equities for six consecutive months from March to August, injecting a total of INR 1.74 lakh crore during this period.

Factors Behind the FPI Exodus: Several factors contributed to the FPI outflow in September. These include the steady appreciation of the US dollar, which pushed the dollar index close to 107, as well as a continuous rise in US bond yields, reaching around 4.7%. Additionally, the spike in Brent crude oil prices to USD 97 also weighed on FPI selling. Higher US interest rates played a role in the FPI exodus, as foreign investors pulled out money from India.

Global Economic Uncertainties: Economic uncertainties in the US and Eurozone regions, coupled with concerns about global economic growth, prompted foreign investors to adopt a risk-averse stance. Rising crude prices, persistent inflation figures, and expectations of prolonged elevated interest rates further fueled foreign investors’ cautious approach.

Impact on Domestic Markets: While FPIs reduced their holdings, domestic institutional investors (DIIs) increased their investments. On a positive note, FPIs invested INR 938 crore in India’s debt market during the same period. So far this year, FPIs have invested INR 1.2 lakh crore in equity and over INR 29,000 crore in the debt market. In terms of sectors, FPIs were net buyers in capital goods and selected financial sectors.

The shifting sentiment of FPIs underscores the influence of global and domestic economic factors on investment flows into Indian markets.