FPIs remain net buyers in January despite heightened geopolitical tensions

Foreign portfolio investors (FPI) remained net buyers in the Indian capital markets in January so far despite heightened geopolitical tensions between the US-Iran and domestic economic challenges.

According to the NSDL data, a net amount of Rs 10,200 crore was invested into equities while a net Rs 8,912 crore was pulled out from the debt segment. This resulted into a net investment of Rs 1,288 crore between January 1 and 17.

Majority of the FPI investment in January came a day after the signing of the US-China trade deal and going forward FPI investments are expected to grow, Harsh Jain, co-founder and COO at Groww said.

"Post a strong comeback in 2019 by the FPIs, the year 2020 began on a muted note. This was largely due to increased volatility witnessed in equity markets worldwide due to heightened geopolitical tensions between the USIran. This spooked the investor sentiment and FPIs chose to withdraw money from emerging markets like India," Ajit Mishra, VP Research at Religare Broking Ltd said.

Umesh Mehta, head of research at Samco Securities said conviction of FPIs in the Indian markets seems to be diluting given the rich valuations of large caps, inflationary tendencies, expectation of a larger fiscal deficit along with other economic challenges.

On the future of FPI flows, Ajit Mishra said, "Signs of easing tensions between the US and Iran and positive developments on US-China trade deal front led to renewed buying interest by the FPIs. Going ahead, earnings and upcoming budget would play a critical role in shaping their investment trend.

FPIs begin 2020 with profit booking, withdraw Rs 2,418 cr in 1st 3 sessions

Foreign portfolio investors (FPIs) began the year with profit booking as they withdrew a net sum of Rs 2,418 crore from the Indian capital markets in the first three trading sessions of January.

As per latest depositories data, Rs 524.91 crore was pulled out of equities and Rs 1,893.66 crore from the debt segment between January 1-3. This resulted into a cumulative net outflow of Rs 2,418.57 crore.

In 2019, FPIs invested a net sum of Rs 73,276.63 crore in the domestic markets (both equity and debt). Barring January, July and August, FPIs were net buyers for rest of the months in the year gone by.

Umesh Mehta, head of research at Samco Securities said that "given the massive rally of previous year, FPIs have started booking profits in 2020. It is likely that they are building up their war-chest to enable buying in huge quantities just before the Budget in February."

Himanshu Srivastava, senior analyst manager research at Morningstar Investment Adviser India, said "there was an apparent cautiousness" among FPIs.

This could be attributed to some of the negative trends such as political issues in India, re-emergence of trade war between US and China and continuing slowdown in the Indian economy. Besides, year-end profit booking by FPIs could also be one of the factors for relatively low net inflow, he added.

Ajit Mishra, VP research at Religare Broking Ltd, said, "FPIs were net sellers as they booked profits at higher levels. Going forward, if geopolitical tension between US-Iran escalates further, it could restrict FPI flows."

However, in the long term, FPIs remain confident about the Indian markets as they are anticipating positive measures and reforms would continue to aid economic recovery, Mishra added.

FPIs pull out over Rs 6,200 cr in Oct so far as global recession fears loom

Foreign portfolio investors withdrew over Rs 6,200 crore from Indian capital markets in the first two weeks of October, as global recession fears and trade war concerns weighed on sentiments.

Foreign investors pulled out a net amount of Rs 4,955.2 crore from the equities and Rs 1,261.9 from the debt segment, taking the total net withdrawal to Rs 6,217.1 crore during October 1-11, as per latest depositories data.

Overseas investors were net buyers in the preceding month and had infused a net sum of Rs 6,557.8 crore in the domestic capital markets (both equities and debt), according to the data.

The foreign portfolio investors (FPI) in October went back in "hibernation mode" after remaining net sellers in September when the inflows were driven by slew of economic reforms announced by the government, said Himanshu Srivastava, senior analyst manager research at Morningstar Investment.

"However, things have remained muted after that, as FPIs have turned risk-averse with fears of global recession and trade war gaining momentum. Moreover, the Indian economy has also been facing significant headwinds and has failed to pick pace so far. More recently, world bodies like IMF, ADB and Moody's have cut growth forecasts of India, which dented sentiments further," Srivastava added.

Harsh Jain, co-founder and COO at Groww said: "The new FPI/FDI classification might affect the mood of foreign investors for some time. The reduced GDP forecast by Moody's and other institutions seems to be affecting the foreign investors also. India's troubled banking and financial sector is definitely making investors jittery".

Arun Mantri, technical and derivative analyst at Karvy Stock Broking, said the FPIs have been net sellers so far in October "tracking global headwinds".

"This has occurred despite the government's major announcements to revive animal spirits. The major reason behind the selling is the rising fear is a global recession, and weak investor sentiment due to the ongoing trade war between US and China," he added.

For the future course of FPI flows, he said, in the short to medium term, FPIs flows will depend on the corporate earnings, global trade developments and government actions to curb the slowdown in the economy.

FPIs withdraw $3 billion between July-September; highest in 11 quarters

Overseas investors have pulled out over Rs 20,000 crore ($3 billion) from Indian equities during the third quarter of the calendar year 2019 (Q3CY19), the steepest quarterly outflow since the October –December 2016 quarter, when they had pulled out Rs 31,222 crore ($4.6 billion) from the equity market.

Foreign portfolio investors (FPIs) have sold equity shares net amounting of Rs 21,592 crore ($3.09 billion) between July and September 26, according to the latest available depository data. However, the volume of outflow slowed down after the government announced a reduction in corporation tax rate. This is in contrast as compared to first two quarters of CY19, when they had made net inflow of Rs 79,080 crore ($11.3 billion) amid expectation of the Narendra Modi-led government coming to power for a consecutive second term.

“Post the Budget on July 5, FPI outflows had accelerated given the slowing growth environment and weak corporate earnings. Going ahead, Indian equities could see further upside, especially if the Reserve Bank of India (RBI) cuts interest rates in October and takes a dovish stance,” wrote Jitendra Gohil, head of India equity research at Credit Suisse Wealth Management in a co-authored note with Premal Kamdar, their equity research analyst.

Despite the 3 per cent gain in September 2019, the FPI sell-off during the quarter has seen the benchmark indices – the S&P BSE Sensex (down 2 per cent) and the Nifty 50 (down around 3 per cent) – register negative returns in Q3CY19.

While most brokerages remain bullish on the road ahead for Indian equities from a medium-to-long term perspective and have recalibrated their six-and 12-month target levels for the frontline indices given the cut in corporation tax rate and the other stimulus measures announced to prop-up the economy, they do not see the FPIs coming back to India in a hurry.

India Ratings and Research (Ind-Ra), for instance, expects headwinds for FPI flows into India to continue over the near-to-medium term, despite the accommodative global monetary policy stance and the central government’s efforts to alleviate uncertainty regarding the higher surcharge.

“A gamut of factors, such as slower-than-expected demand growth in major economies, geopolitical and trade tensions and a gradual weakening of the economic growth prospects in India, have contributed to a build-up of risk aversion, which has impeded the demand for emerging market (EM) debt instruments,” they said in a recent report.

U R Bhat, managing director at Dalton Capital echoes a similar view and cautions that the flows may not pick up dramatically over the next six months.

“There are too many moving parts to the ‘invest in India’ theme. Foreign investors first need to be interested in emerging markets (EMs) and only then can they look at India. EMs are a risky bet given the host of factors such as trade wars, geopolitics etc. That said, domestic institutions have built up enough muscle to prevent a sharp market fall in the absence of foreign flows, which can help indices sustain at higher levels,” he says.

And the data does prove him correct. Domestic mutual funds’ net inflow in equities during the quarter crossed the Rs 40,000 crore mark for the first time since September 2017 quarter. They were net buyers of Rs 42,306 crore till September 26, shows the latest available data.

Quarter ended Net flow in Rs crore

Mututal Funds FPIs

Dec,2016 32,083 -31,222

March,2017 11,469 44,220

June,2017 29,708 11,688

Sep,2017 47,198 -19,379

Dec,2017 30,404 16,355

March,2018 34,460 13,607

June,2018 34,355 -18,447

Sep,2018 19,652 -10,222

Dec,2018 32,207 -19,100

March,2019 1,938 47,940

June,2019 6,794 31,140

Sep,2019* 42,306 -21,592

FPIs pump in Rs 20,400 crore in first half of March on positive global cues

Overseas investors poured in more than Rs 20,400 crore in the domestic capital market in the first half of March, mainly driven by positive global cues.

The expectation of a positive outcome from the US-China trade agreement along with US Fed's decision to put rate hike on hold, have worked in favour of the entire emerging market segment, analysts said.

In February as well, foreign portfolio investors (FPIs) were net buyers as they had invested a net amount of Rs 11,182 crore in the capital markets both in equity as well as debt segment.

According to the latest data available with depositories, net inflow in the equities stood at Rs 17,919 crore, while the debt market saw an infusion of Rs 2,499 crore on a net basis, during March 1-15, period.

Together, it translates into a net investment of Rs 20,418 crore in the country's capital markets for the period under review.

"With the expectation on US interest rate hike declining, there has been increased flow into emerging markets. Locally, since February, there is a clear trend of FPIs buying beaten down segments such as banking and finance stocks...," Vidya Bala, Head - Mutual Funds Research at FundsIndia said.

Himanshu Srivastava, senior analyst manager research at Morningstar Investment Adviser India, said it was a welcome change in FPI trend.

However, some of the domestic concerns such as the slow pace of economic growth and political uncertainty may come to the fore as the general election approaches in India, he added.