The value of foreign portfolio investors’ holdings in domestic equities reached $651 billion in the three months ended September 2023, which was 15% higher than the year-ago period, according to a Morningstar report.
This could be attributed to the good performance of the domestic equity markets as well as strong net FPI inflows.
According to the report, the value of FPIs’ investments in Indian equities rose from $566 billion as of September 2022 to $651 billion at the end of September 2023.
On a quarter-on-quarter basis, the value of such investment rose 4% from $626 billion recorded in the three months ended June this year.
Despite the growth, FPIs’ contribution to Indian equity market capitalisation fell marginally during the quarter under review to 16.95% from 17.33% in the previous quarter.
Picking up from the June quarter, foreign investors continued their buying spree in the Indian equity markets for the most part of the September quarter with a net infusion of $5.38 billion.
Foreign Portfolio Investors (FPIs) pumped $5.68 billion into Indian equities in July on steady earnings growth recovery, stable macro fundamentals, and the challenges faced by the Chinese economy and concerns over its recovery. Additionally, the resilient state of the domestic economy and the markets amid global uncertainty also attracted foreign investors toward Indian equities.
However, the pace of investments from FPIs ebbed substantially in August to $1.48 billion on concerns on the global macro front on the back of higher crude oil prices and the resurfacing of inflation risks.
“The firming up of bond yields in the US also led some foreign investors to drift away from riskier markets in favour of the greater certainty and better risk/reward profile of US Treasuries. Also, the intermittent rally in the Indian equity markets resulted in its valuation going beyond the comfort level of investors,” the report noted.
This scenario led foreign investors to become net sellers in the Indian equity markets in September, the first time in six months. Through the month, they sold net assets to the tune of $1.78 billion.
“This was primarily because of continued economic uncertainties in the US and eurozone regions, as well as growing concerns about global economic growth. This led foreign investors to turn risk-averse. A sharp surge in the US Treasury bond yields also didn’t augur well for emerging-markets equities, resulting in a sell-off from foreign investors,” the report said.
Additionally, higher crude prices, sticky inflation numbers, and the expectation that interest rates may continue to remain at elevated levels for longer than expected prompted foreign investors to adopt a wait-and-watch approach. Subnormal monsoon activity in India and its impact on inflation was also a concern for the domestic economy, it added.
Since then, FPIs have been on a selling spree. While in October they were net sellers to the tune of $2.95 billion, in November so far (till November 10), they have sold net assets worth $697 million.