Foreign Portfolio Investors (FPIs) Make a Massive Exit

In a significant financial movement, Foreign Portfolio Investors (FPIs) have withdrawn a staggering Rs 44,396 crore from Indian equities this month. This trend is primarily attributed to the strengthening dollar, increasing US bond yields, and the anticipation of weak earnings. The withdrawal follows a previous pullout of over Rs 15,400 crore in December, as per the latest depository data.

Understanding the FPI Exodus

Himanshu Srivastava, Associate Director - Manager Research at Morningstar Investment Advisers India, points out that the continued depreciation of the Indian rupee is exerting significant pressure on foreign investors, leading them to pull out of the Indian equity markets. Additionally, the higher valuation of Indian equities, despite recent adjustments, anticipated weak earnings period, and an unclear economic growth trajectory are adding to the concerns of investors.

Impact of Global Financial Trends

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, explains that the strength of the dollar and the rising bond yields in the US are the principal reasons for the sustained selling by FPIs. With the dollar index above 109 and the 10-year US bond yield above 4.6 percent, it's logical for FPIs to sell in emerging markets, especially in India, which is considered the most expensive emerging market.

Looking Ahead: Potential for Reversal

Vipul Bhowar, Senior Director - Listed Investments at Waterfield Advisors, suggests that improved corporate earnings, robust GDP growth supported by domestic consumption, and increased infrastructure spending by the government could trigger a reversal in FPI flows to India.