FPI Cuts Stocks in May Amid Poll Anxiety and Attractive Chinese Valuations

The June 4 announcement of the election results could have a significant impact on foreign portfolio investment flows into Indian shares in the near future.

Due to the extraordinary performance of Chinese markets and the unpredictability surrounding the outcome of the general election, foreign investors withdrew a substantial Rs 25,586 crore from Indian stocks in May. This amount is a considerable rise over the net outflow of more than Rs 8,700 crore that occurred in April. April’s worries were mostly caused by fears of changes to India’s tax treaty with Mauritius and a persistent increase in the yields on US bonds. Foreign Portfolio Investors (FPIs) made a net investment of Rs 35,098 crore in March before these developments. and 153939 crore rupees in February. But in January, they took out Rs 25,743 crore.

The June 4 announcement of the election results could have a significant impact on foreign portfolio investment flows into Indian shares in the near future. Furthermore, according to Vijayakumar, Chief Investment Strategist at Geojit Financial Services, FPI flows are anticipated to be more impacted by changes in US interest rates over the medium term.

FPI Withdrew FPI Cuts Stocks in May Amid Poll Anxiety

According to data, FPIs withdrew a net amount of Rs 25,586 crore from stocks in May. This tendency was influenced by a number of variables, including comparatively high valuations, dismal earnings—especially in the financial and IT sectors, where FPIs have a significant stake—and political unpredictability surrounding the results of the election. Furthermore, the general attitude of being risk-averse worldwide and the allure of Chinese markets further spurred FPI selling, as noted by Waterfield Advisors’ Director of Listed Investments, Vipul Bhowar.

According to Vijayakumar, the increase in Chinese stocks—the Hang Seng index rose 8% in the first half of May alone—exacerbated the selling pressure on Indian stocks. The increase in US bond yields, which prompted FPIs to shift money from emerging markets like India to bonds, was another significant driver.

Nevertheless, despite these difficulties, strong GDP growth, controlled inflation, and stable political conditions may open the door to a bright future for the Indian economy and even reverse the net selling tendency that was noted in May. Notably, the recently announced GDP growth numbers for Q4FY24—which came in at 7.8%—surpassed estimates, and the increase for the entire year FY24 measured 8.2 percent. Furthermore, the government has extra financial room to prioritize infrastructure spending thanks to the RBI’s record dividend of Rs 2.1 lakh crore.

Smallcase Manager (FPI Cuts Stocks in May Amid Poll Anxiety)

Smallcase manager and FidelFolio founder Kislay Upadhyay predicts that monthly FPI inflows could surpass a continuous Rs 30,000 crore if the current administration stays in office.

Experts in the market, such Shailesh Saraf, CEO of Valuestocks and smallcase manager, are optimistic about the Indian markets. He points to prospects of a notable increase in corporate profits in March 2024 and the reelection of the ruling party.

FPI Cuts Stocks in May Amid Poll Anxiety, and invested Rs 8,761 crore in debt and Rs 4,283 crore through debt-VRR (Voluntary Retention Route) in contrast to the outflow from stocks. The expected inclusion of Indian government bonds was the driving force behind this inflow. in the index of JP Morgan. Given India’s membership in global bond indices, long-term prospects for foreign direct investment (FFI) flows into Indian debt seem promising. Near-term flows, however, are vulnerable to volatility and macroeconomic uncertainty worldwide.

FPIs have invested a total of Rs 53,669 crore in the debt market and have taken out a net total of Rs 23,364 crore from stocks thus far in 2024.

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