Foreign investors maintained their aggressive selling in the Indian equity markets throughout August, offloading shares worth Rs 21,201 crore. This wave of selling was influenced by factors including the unwinding of the yen carry trade, recession fears in the US, and ongoing geopolitical conflicts.
Previous Inflows and Recent Withdrawals
This selling activity follows a notable influx of Rs 32,365 crore in July and Rs 26,565 crore in June, according to data from depositories. The inflows in these two months were driven by expectations of sustained economic growth, continued reform measures, a better-than-expected earnings season, and political stability.
Prior to these inflows, foreign portfolio investors (FPIs) had withdrawn Rs 25,586 crore in May due to election-related uncertainties and over Rs 8,700 crore in April because of concerns over changes to India’s tax treaty with Mauritius and rising US bond yields.
August Withdrawals and Market Trends
Data shows that FPIs withdrew a net amount of Rs 21,201 crore from equities from August 1 to 17. Despite these withdrawals, FPIs have invested a net total of Rs 14,364 crore in equities so far this year.
The outflows in August were driven by both global and domestic factors. A significant trend observed is FPIs’ continued selling through the secondary market while simultaneously investing in the ‘primary market and others’ category.
This behavior highlights a preference for primary market issues, which are viewed as having comparatively lower valuations, compared to the high valuations in the secondary market.
Expert View
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, explained, “The primary market issues are at comparatively lower valuations, while in the secondary market, the valuations continue to remain high. So, FPIs are buying when securities are available at fair valuations and selling when the valuations get stretched in the secondary market.”
Debt Market Investment Remains Strong
On a positive note, FPIs invested Rs 9,112 crore in the debt market in August so far, bringing the total investment in debt instruments to Rs 1 lakh crore for the year 2024.