FPIs pull Rs 28,200 cr from equities in May

New Delhi: Foreign investors have pulled out a massive Rs28,200 crore from Indian equities so far this month, owing to uncertainties about the outcome of the general elections and attractive valuations of Chinese markets.

The withdrawal was way higher than a net pullout of over Rs8,700 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 Rs35,098 crore in March and Rs1,539 crore in February. Going forward, there is likely to be a dramatic change in foreign portfolio investors’ (FPIs) equity flows in response to election results. Political stability will attract huge inflows in the Indian market, VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.

Following the Lok Sabha elections, FPI inflows into India could strengthen due to three key factors -- potential easing of interest rates by the US Federal Reserve, positive resolutions in global geopolitical tensions and India’s increasing weight in the MSCI Emerging Markets Index projected to exceed 20 per cent by mid-2024, Karthick Jonagadla, smallcase Manager and founder, Quantace Research, said. According to the data with the depositories, foreign portfolio investors experienced a net outflow of Rs28,242 crore in equities this month (till May 17). There are two main reasons why FPIs have been selling in FY2025. First, there’s uncertainty about the general elections. FPIs generally don’t like uncertainty; they prefer to play it safe and lock in the profit they made last year. Second, the market valuations are high, MojoPMS Chief Investment Officer Sunil Damania said.

In addition, FPIs are reallocating funds to China and Hong Kong, which are trading at attractive (cheaper) valuations compared to Indian stocks, Anirudh Naha, CIO-Alternatives of PGIM India Asset Management, said.

Vijayakumar believes that the main trigger for the FPI selling has been the outperformance of the Kong Kong index Hang Seng, which shot up by 19.33 per cent during the last one month. They are moving money from expensive markets like India to cheap markets like Hong Kong. Further, FPIs withdrawal could be attributed to the ongoing geopolitical crisis in the Middle East, relative valuation discomfort, and the strength of US bond yields, Vipul Bhowar, Director, Listed Investments, Waterfield Advisors, said.