Foreign Institutional Investors (FIIs) withdrew over Rs 2,800 crore from the Indian equities market in the first week of August, signaling a trend reversal, following consistent buying over the past five months. Experts attribute this to the rising US bond yields and the subsequent upward surge of the US Dollar, deterring FIIs from further investment. FIIs’ net investments for the current year were Rs 1,997.70 crore in March, Rs 5,711.80 crore in April, Rs 27,856 crore in May, Rs 27,250.02 crore in June, and Rs 13,922.01 crore in July. However, they offloaded equities worth net Rs 2,844.47 crore for the month till August 4, 2023.
FIIs may continue to sell if US bond yields remain high
“If the U.S. bond yields remain high FPIs are likely to continue selling or at least refrain from buying,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, adding that the sharp spike in the US 10-year bond yield above 4% is a near term negative for capital flows to emerging markets. “After sustained buying for three months, FPIs have turned sellers in the Indian market. During the last seven trading sessions, FPIs sold stocks worth Rs 8,545 crores in the cash market. During the last three months, FPIs have been sustained buyers in the Indian market having invested a cumulative amount of Rs 13,7603 crores,” he said.
Morgan Stanley’s upgraded rating, strong microeconomic data make Dalal Street irresistible
“While markets may display volatility due to sharp fluctuations in global equities and RBI’s credit policy announcement this week, FII trend in domestic equities too could be choppy in the near term, especially due to rising US bond yield and dollar’s upward march. In case the US bond yields continue to rise, FIIs may look to shun local equities. However, with India’s macroeconomic numbers remaining impressive so far, and Morgan Stanley upgrading India to overweight last week, it would be difficult for overseas investors to ignore India in spite of higher valuation concerns,” said Shrikant Chouhan, Head of Research (Retail), Kotak Securities.