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Foreign investors have adopted a cautious stance and invested Rs 7,320 crore in Indian equities in August. This is due to high valuations of stocks and the end of the yen carry trade after the Bank of Japan raised interest rates.
This investment is much lower than ₹32,365 crore in July and ₹26,565 crore in June, according to data from depositories.
Vipul Bhowar, director, listed investments, Waterfield Advisors, said while FPI interest is likely to continue in September, flows will be shaped by a combination of domestic political stability, economic indicators, global interest rate movements, market valuations, sectoral preferences and attractiveness of the debt market.
Foreign portfolio investors (FPIs) invested a net Rs 7,320 crore in Indian equities in August, according to data from depositories.
The fundamental reason for lower FPI interest compared to the last two months is the high valuations in the Indian market. With the Nifty trading at more than 20 times its FY25 estimated earnings, India is now the most expensive market in the world.
VK Vijayakumar, chief investment strategist at Geojit Financial Services, said FPIs have opportunities to invest in much cheaper markets and hence their preference is for markets other than India.
Additionally, the expiry of yen carry trade on August 24 significantly impacted FPI behaviour, leading to massive selling in Indian equities, Bhowar said.
He said the decline coincided with rising fears of a possible recession in the US and disappointing economic data, which further aggravated the market reaction.
Interestingly, FPIs are selling in the secondary market, where valuations are considered higher, and redirecting their investments towards the primary market, where valuations are relatively lower.
Meanwhile, FPIs invested Rs 17,960 crore in the debt markets in August.
Experts believe that inclusion in global bond indices, attractive interest rates, stable economic growth, trends from equities and favourable long-term scenario are the key factors driving FPIs to invest in debt.
Investments in debt are led by index inclusion flows. This is since October last year when JP Morgan announced index inclusion, said Vishad Turakhia, managing director, Equirus Securities.
Nimesh Chandan, CIO, Bajaj Finserv Asset Management Ltd, said India’s inclusion in global bond indices and attractive yields have attracted investments.
Geojit’s Vijayakumar said FPIs are mainly buying in the debt market as the Indian rupee (INR) has remained stable this year and this stability is expected to continue.
With this, FPI investment in equity has reached ₹ 42,885 crore and in the debt market ₹ 1.08 lakh crore so far in 2024.
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