Foreign Portfolio Investors (FPIs) have continued their selling trend in November, withdrawing a total of Rs 3,400 crore in just three trading sessions. This follows significant outflows of Rs 24,548 crore in October and Rs 14,767 crore in September. This reversal in FPI investment comes on the back of rising interest rates and heightened geopolitical tensions in the Middle East.
Changing Bond Yield Dynamics
The primary trigger for FPI selling had been the rising bond yields. However, this trend is expected to reverse, as the US Federal Reserve recently signaled a more dovish stance in its November meeting. Fed Chief Jerome Powell’s statement that “despite elevated inflation, inflationary expectations remain well anchored” has been interpreted by the market as signaling the end of the rate-hiking cycle.
Geopolitical Concerns and Market Uncertainty
Geopolitical tensions, particularly the conflict between Israel and Hamas, along with a notable increase in US Treasury bond yields, have contributed to the FPI sell-off. The global landscape has become more uncertain with concerns about a possible recession, rising inflation, and geopolitical conflicts.
Safe-Haven Assets and Indian Debt Market
In this uncertain scenario, experts suggest an increased focus on safe-haven assets such as gold and US dollars. FPIs have shown interest in the Indian debt market, with an inflow of Rs 1,984 crore during the period under review. This may represent a tactical move to allocate funds to Indian debt in the short term, with the intention of redirecting capital into the equity markets when conditions become more favorable.
Indian Bond Market Attraction
The inclusion of Indian Government Securities (G-Sec) in the JP Morgan Government Bond Index Emerging Markets (GBI-EM) has driven foreign fund participation in the Indian bond markets. So far this year, FPIs have invested Rs 92,560 crore in equities and Rs 37,485 crore in the debt market.
Sectoral Expectations
In terms of sectors, frontline banking, automobiles, capital goods, mid-cap IT, and real estate are expected to perform well in this evolving investment landscape.