FPIs invest ₹1,433 crore in Indian equities, reverse selling streak after 3 months on sharp decline in US bond yields

FPIs are bought 1,433 crore Indian equity and the total inflow stands at 15,375 crore as on November 17, including debt, hybrid, debt-VRR, and equity, according to National Securities Depository Ltd (NSDL) data.

FPIs were net buyers till November 15, but reversed the selling trend and invested on November 15 and 16. During August, September October and till November 15, FPIs sold stocks for 83,422 crore through the exchanges.

‘Due to the resilience of the market and strong upward movements on favorable days there is a need to rethink the FPI strategy. That’s why they turned buyers on the 15th and 16th of this month after a continuous sale in the first two weeks of November,” said Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

The sharp drop in the US 10-year bond yield to 4.45 percent is an inflection point for the parent market and thus for global stock markets, according to analysts. Before August, FPIs continued to buy Indian equities for three months.

US bonds fell 4.45%: What’s behind the correction?

Following the latest US Federal Reserve policy outcome on November 1, US bond yields have corrected sharply to 4.66 percent on Fed Chairman Jerome Powell’s dovish commentary.

The rate-setting Federal Open Market Committee decided to keep key overnight interest rates unchanged at 5.25-5.50 percent – a 22-year high mark for the second straight meeting. Other major central banks including the Bank of England and the Bank of Japan have kept key interest rates on hold – as has the US Fed.

“The main driver for this reversal in bond yields is the subtle dovish comment from Fed chief Jerome Powell that “despite rising inflation, inflation expectations remain anchored.” The market has interpreted this statement as the end of the rate hike cycle. That’s why the yield has corrected sharply,” said Dr. Geojits VK Vijayakumar.

FPI inflows are likely to continue; Here’s why

Markets now believe that the Fed is done with rate hikes and will slowly begin to discount rate cuts in 2024. If the downward trend in US inflation continues the Fed may cut rates by mid-2024. This can lead to FPI inflows in emerging markets (EMs) to facilitate. India, according to analysts.

Analysts also believe that the Indian market continues to show resilience even amid various challenges and there is a growing concern among FPIs that if they continue to sell, they will lose out on the potential crowd in the Indian market. This may restrict the FPIs from selling and inflows are likely to continue in the coming days.

What do market trends indicate for FPIs?.

An important trend in the market is the increasing number of domestic institutional investors (DIIs), high net worth individuals (HNIs) and retail investors and the declining influence of domestic investment institutions. “FPI selling is being completely neutralized by DII and buying by individual investors. This is why Nifty is around 19,700, the same level it was in early August,” said Dr VK Vijayakumar.

Benchmark domestic equity indices ended in the red on Friday’s session amid weak cues from Asian markets and saw highly volatile trading trends. The 30-share BSE Sensex ended lower by 187.75 points or 0.28 per cent at 65,794.73 level while the Nifty 50 closed at 19,731.80 level, down 33.40 points or 0.17 per cent.

The broader market closed inched higher than the benchmark indices on Friday’s session, the Nifty Midcap 100 closed 0.20 percent higher and the small cap Nifty ended flat or 0.09 percent higher.

The RBI’s move to raise the risk weighting of unsecured loans has affected sentiments in the banking and financial segments. “However, this is likely to be short-term as the profitability of central banks is unlikely to be affected. Institutions would prefer to invest more in sectors like autos, capital goods, telecommunications, pharmaceuticals, IT and construction related items in the short term,” said Dr. VK Vijayakumar.

Disclaimer: The above opinions and recommendations are the opinions and recommendations of individual analysts, experts and brokerage firms, not those of Mint. We encourage investors to check with certified experts before making any investment decisions.

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Updated: 18 November 2023, 05:14 PM IST

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