FPIs turn net sellers after STT hike

New Delhi: Foreign investors injected over Rs33,600 crore into Indian equities so far this month on the expectation of continued policy reforms, sustained economic growth and a better-than-expected earnings season.However, they pulled out over Rs7,200 crore from equities in the last three trading sessions (July 24-26) after the government hiked taxes on Futures and Options trades (F&O) and capital gains from equity investments in the Budget. Market experts believe that Indian equity is well-positioned for the year to attract foreign investments. However, there may be some monthly volatility due to short-term news. “Indian equity market and bond market are favourably placed for the year. This should attract foreign flows into the country. There could be some volatility in the flows on a month-on-month basis due to short-term news flows,” Nimesh Chandan, CIO of Bajaj Finserv AMC, said.

According to the data with the depositories, foreign portfolio investors (FPIs) have made a net inflow of Rs 33,688 crore in equities this month (till July 26). This came following an inflow of Rs 26,565 crore in equities in June, driven by political stability and the sharp rebound in markets. Before that, FPIs withdrew Rs 25,586 crore in May on poll jitters and over Rs 8,700 crore in April on concerns over a tweak in India’s tax treaty with Mauritius and a sustained rise in US bond yields. “Economically, India stands on a strong footing. Moreover, the better-than-expected earnings season so far has improved corporate India’s balance sheet that would help in building investor confidence. “Furthermore, there is growing anticipation of an interest rate cut by the US Federal Reserve in September,” Himanshu Srivastava, Associate Director - Manager Research at Morningstar Investment Research India, said.

Upward revisions in India’s GDP forecast by the IMF and ADB, and a slowdown in China work in India’s favour, he added. A key trend in FPIs and domestic institutional investors’ (DII) investment in equity over the last 30 months is that whenever FPIs were consistent sellers, DIIs were consistent buyers. The large inflow of money into domestic mutual funds and the growing influence of retail investors have strengthened domestic investors compared to their foreign counterparts, VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said. Apart from equities, FPIs invested Rs 19,223 crore in the debt market during the period under review. This has pushed the debt tally to Rs 87,847 crore this year so far. With the inclusion in the international bond indices, foreign flows are expected to come into the Indian bond market. This is likely to push G-Sec yields lower, Bajaj Finserv AMC’s Chandan said.