Foreign investors have pumped in Rs 7,320 crore into Indian equities this August. This move reflects a cautious approach due to high stock valuations and the unwinding of the Yen carry trade after the Bank of Japan hiked interest rates.
Image: Foreign Portfolio Investment by FPIs
 "Big Drop! Foreign Cash in Stocks Plummets to ₹7,320 Cr in August")
Meanwhile, FPIs infused Rs 17,960 crore into the debt markets in August | Photo: Shutterstock
This month’s investment is significantly lower than the Rs 32,365 crore in July and Rs 26,565 crore in June, per depository data.
What Influences FPI Behavior?
Vipul Bhowar, Director of Listed Investments at Waterfield Advisors, shared that while FPIs are expected to continue showing interest in September, several factors will shape this flow. These include domestic political stability, economic indicators, global interest rate movements, market valuations, sectoral preferences, and the appeal of the debt market.
High Valuations in the Indian Market
Depository data indicated that Foreign Portfolio Investors (FPIs) invested Rs 7,320 crore in Indian equities in August. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted that the primary reason for the lower FPI interest versus the previous two months is the high valuations in the Indian market. With Nifty trading at over 20 times estimated FY25 earnings, India is presently the most expensive market globally.
"FPIs have opportunities to invest in more affordable markets; hence, their focus is largely outside India," shared Vijayakumar.
Impact of the Yen Carry Trade
Additionally, the unwinding of the Yen carry trade on August 24th significantly impacted FPI behavior, leading to substantial sell-offs in Indian equities, as noted by Bhowar. This unwinding came alongside rising fears of a potential recession in the U.S. and disappointing economic data, further affecting the market’s reaction.
The Shift From Secondary to Primary Markets
Interestingly, FPIs have been selling in the secondary market where valuations are high and are redirecting investments towards the primary market, which offers relatively lower valuations.
FPI Investments in Debt Markets
In August, FPIs invested Rs 17,960 crore in the debt markets. Experts believe that inclusion in global bond indices, attractive interest rates, stable economic growth, and a favorable long-term outlook have been key factors driving FPIs towards debt investment.
The Appeal of Indian Debt
According to Vishad Turakhia, Managing Director at Equirus Securities, investment in debt has been primarily driven by index inclusion flows since JPMorgan announced index inclusion in October last year. Nimesh Chandan, CIO at Bajaj Finserv Asset Management Ltd, added that India’s inclusion in global bond indices and attractive yields have attracted considerable flows.
Geojit’s Vijayakumar also noted that FPIs are buying in the debt market mainly because the Indian Rupee (INR) has been stable this year, and this stability is expected to continue.
Year-to-Date Investments
So far in 2024, FPIs have invested Rs 42,885 crore in equities and Rs 1.08 lakh crore in the debt market.
As we move forward, market watchers will keep a close eye on these dynamics to gauge future FPI behavior and its impact on India’s financial landscape.