FPIs Take Cautious Approach Amid Lok Sabha Elections, Inject Rs 1,156 Cr In May

Foreign investors have adopted a “wait and watch” stance amidst the ongoing general elections and have infused just Rs 1,156 crore in the first two trading sessions of this month.

This came after FPIs dumped equities worth Rs 8,700 crore in April, on concerns over a tweak in India’s tax treaty with Mauritius and a sustained rise in US bond yields. Before that, FPIs made a net investment of Rs 35,098 crore in March and Rs 1,539 crore in February.

In the two days of trading in May, Foreign Portfolio Investors (FPIs) have invested Rs 1,156 crore in equity and sold Rs 1,726 crore in debt, data with the depositories showed.

“With general elections in full swing in India, foreign investors have adopted a wait and watch approach, until the election results are out,” Himanshu Srivastava, Associate Director – Manager Research, Morningstar Investment Research India, said.

Additionally, a mixed batch of US data has barely shaken the perceptions that the economy remains robust, indicating that the Federal Reserve may push its first interest rate cut to later part of this year, he added.

“The latest jobs data in the US indicates a slowing economy and, therefore, rate cuts may be necessitated. The wage increase falling below 4 per cent also reflects a weakening labour market. From the stock market’s perspective this is good news. That’s why the US markets rallied sharply on Friday,” V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.

On the other hand, FPIs withdrew Rs 1,727 crore from the debt market during the period under review.

Before this outflow, foreign investors put in Rs 13,602 crore in March, Rs 22,419 crore in February, Rs 19,836 crore in January. This inflow was driven by the upcoming inclusion of Indian government bonds in the JP Morgan Index.

JP Morgan Chase & Co in September last year announced that it would add Indian government bonds to its benchmark emerging market index from June 2024. This landmark inclusion is anticipated to benefit India by attracting around USD 20-40 billion in the subsequent 18 to 24 months.

Going ahead, the flows would continue to be driven by the expectation of where the interest rates are headed, Morningstar’s Srivastava said.

Overall, the total inflow for 2024 so far stood at Rs 3,378 crore in equities and Rs 43,182 crore in the debt market.