In recent weeks, the Indian equity market has experienced a significant outflow of nearly Rs 9,800 crore as foreign investors react to the rising US bond yields and the uncertain environment created by the Israel-Hamas conflict.
This outflow follows a trend from the previous month, where Foreign Portfolio Investors (FPIs) turned net sellers and withdrew Rs 14,767 crore. However, it is worth noting that FPIs had been consistently investing in Indian equities from March to August, bringing in a total of Rs 1.74 lakh crore during that period.
Geopolitical tensions, such as the current conflict, often lead to increased risk perception, which can negatively impact foreign capital inflows into emerging markets like India.
Data from the depositories reveals that FPIs have sold shares amounting to Rs 9,784 crore so far this month (up until 13 October). This trend suggests a more cautious approach by FPIs when it comes to investing in emerging markets.
The uncertainty surrounding the conflict has raised concerns about potential disruptions in oil-related activities, which could potentially result in inflationary pressures. FPIs seem to be preparing for such possible shocks by opting to book profits and adopt a risk-off attitude after months of optimistic investment.
Given the current situation, experts anticipate a greater focus on safe-haven assets like gold and the US dollar.
While there has been a significant outflow from the equity market, FPIs have invested Rs 4,000 crore in India’s debt market during the same period.
Taking into account the cumulative investments this year, FPIs have deployed about Rs 1.1 lakh crore in equity and over Rs 33,000 crore in the debt market.
In terms of sectors, financials, power and IT have witnessed selling pressure from FPIs, while capital goods and automobiles continue to attract their buying interest.
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