Foreign investors pull out Rs 17,000 crore from equities amid election uncertainty

Foreign Portfolio Investors (FPIs) withdrew a substantial Rs 17,000 crore from equities during the first 10 days of May, attributing the pullout to apprehensions surrounding the general election outcome, elevated market valuations, and profit booking.

The outflow starkly contrasts with a net withdrawal of Rs 8,700 crore recorded for the entire month of April, prompted by concerns over adjustments in India's tax treaty with Mauritius and a sustained uptrend in US bond yields. However, preceding this, FPIs infused Rs 35,098 crore in March and Rs 1,539 crore in February.

Looking ahead, market analysts expect that the robust financial performance of corporate India in Q4 FY24 could potentially attract positive investor sentiment post-elections. While FPIs might maintain a cautious stance until the election results are revealed, favourable outcomes and established political stability could prompt their resurgence in significant numbers.

Multiple factors contributed to the recent aggressive selling by FPIs. The prevailing political uncertainty in India, coupled with relatively high market valuations, prompted investors to opt for profit booking and await further clarity on the country's political landscape.

Additionally, the US Federal Reserve's indication of refraining from rate cuts until inflation subsides has heightened scepticism over the possibility of an early rate reduction. The stance, alongside the strengthening US dollar and surging US Treasury yields, further influenced FPI behaviour.

Despite the recent outflow, foreign investors have shown sustained interest in the Indian debt market, injecting Rs 14,307 crore thus far in 2024. However, FPIs have withdrawn a net amount of Rs 14,860 crore from equities during the same period.

The consistent selling by FPIs contrasts with domestic institutional investors (DIIs), who have remained net buyers in all trading sessions of May, with cumulative DII purchases amounting to Rs 19,410 crore.

Overall, while FPIs exhibit a cautious approach amid prevailing uncertainties, the market awaits the election outcome and subsequent developments to gauge the direction of foreign fund flows in the coming months.

(With PTI inputs)