Foreign Investors Withdraw Rs 21,201 Crore from Indian Equity Markets in August

In August, foreign investors sold shares worth Rs 21,201 crore in Indian equity markets due to the unwinding of the yen carry trade, US recession fears, and geopolitical tensions. This followed significant inflows in previous months. Various global and domestic factors influenced the market dynamics and investor behavior.

Foreign investors continued their relentless selling in the Indian equity markets in August, offloading shares worth Rs 21,201 crore due to the unwinding of the yen carry trade, recession fears in the US, and ongoing geopolitical conflicts.

This came after an inflow of Rs 32,365 crore in July and Rs 26,565 crore in June, data with the depositories showed.

Foreign portfolio investors (FPIs) injected funds in these two months, driven by expectations of sustained economic growth, continued reform measures, an impressive earnings season, and political stability.

Before that, FPIs withdrew Rs 25,586 crore in May on election anxiety and over Rs 8,700 crore in April due to concerns about changes in India's tax treaty with Mauritius and a consistent rise in US bond yields.

According to the data, FPIs pulled out a net amount of Rs 21,201 crore in equities so far this month (August 1-17).

In 2023, FPIs invested Rs 14,364 crore in Indian equities, as per depository data.

FPI outflows in August were driven by both global and domestic factors. Globally, the unwinding of the yen carry trade, potential global recession, slowing economic growth, and ongoing geopolitical conflicts contributed to market volatility and risk aversion, said Vipul Bhowar, Director of Listed Investments at Waterfield Advisors.

The outflow was triggered by the unwinding of the yen carry trade after the Bank of Japan raised interest rates to 0.25 percent.

Domestically, after being net buyers in June and July, some FPIs might have opted to book profits following a strong rally in prior quarters. Additionally, mixed quarterly earnings and relatively higher valuations have made Indian equities less attractive, Bhowar added.

Himanshu Srivastava, Associate Director of Manager Research at Morningstar Investment Research India, noted that the post-budget announcement of an increase in capital gains tax on equity investments has largely fuelled this selling spree.

Moreover, FPIs have been cautious due to high valuations of Indian stocks coupled with global economic concerns, including rising recession fears in the US amid weak jobs data, uncertainty over the timing of interest rate cuts, and the unwinding of the yen carry trade, he added.

A significant trend in FPI flows recently, which became pronounced in August, is the sustained selling by them through the exchange while continuing to invest through the 'primary market and others' category, due to differences in valuations, said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

On the other hand, FPIs invested Rs 9,112 crore in the debt market in August so far, raising the total to Rs 1 lakh crore in 2024.

(With inputs from agencies.)