Foreign Portfolio Investors (FPIs) have been actively selling Indian equities ahead of the June 4 general election results, with a whopping ₹25,586 crore offloaded in May 2024, as reported by depositories. This selling spree marks the third consecutive month of net outflows from Indian equities by FPIs in the cash market this calendar year.
The data indicates that FPIs have taken significant short positions in index futures recently, suggesting the possibility of a post-election rally if Prime Minister Narendra Modi secures a comfortable third term. Market analysts suggest that political stability could trigger FPIs to turn buyers in the Indian market following the election results on June 4.
However, the trend of FPI outflows from Indian equities in 2024 is notable, with January recording a net outflow of ₹25,744 crore and April witnessing ₹8,671 crore exiting the market. Despite net inflows in March and February, the total equity outflows this year have amounted to ₹23,364 crore, showcasing a shift in FPI preferences towards other markets like China.
Notably, the Nuvama report highlights the shift in FPI flows to markets with strong AI, Chips, and technology-focused companies. China has outperformed India in recent months, and this trend is expected to persist, with Chinese markets projected to outperform Indian peers by 20% in the latter half of the year.
Various factors such as high valuations, weak earnings in sectors like financial and IT, coupled with global risk-off sentiment and the allure of Chinese markets, have contributed to FPIs selling in the Indian market. On the contrary, positive economic indicators like strong GDP growth, manageable inflation, and political stability could attract FPI interest back into Indian equities post-election.
While the Nifty50 has witnessed a decline from its all-time high in May 2024, Domestic Institutional Investors (DIIs) have been active buyers in the market, injecting ₹53,618 crore in the cash market by May 30. The debt market, on the other hand, has seen FPIs turning into net buyers, with inflows totaling ₹8,761 crore in May 2024.
Looking ahead, analysts suggest that FPI activity post-election will depend on the market response to the election results and US interest rates in the medium term. Despite the current FPI selling trend, India’s debt market is expected to receive significant inflows, positioning the country favorably in global bond indices.
In conclusion, the market awaits the election outcome on June 4, which could potentially influence FPI behavior in the Indian market. The evolving economic landscape, along with global market trends, will likely shape FPI flows and market dynamics in the coming months.
