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Published: Feb 27, 2023
Updated: Feb 27, 2023

FPIs Withdraw Rs 2,300 Crore from Indian Equities in February Amidst Rising US Rates

Foreign Portfolio Investors (FPIs) have withdrawn Rs 2,313 crore from Indian equities in February ahead of the release of Federal Reserve's latest meeting minutes. This cautious move by FPIs is attributed to rising rates in the US, which may lead to more capital outflows from emerging markets, including India.

Slowdown in Selling Pace Compared to January

Although the pace of selling has slowed down compared to January, where FPIs took out Rs 28,852 crore, this is still the worst outflow in the last seven months. Prior to this, FPIs had made a net investment of Rs 11,119 crore in December and Rs 36,238 crore in November. Despite intermittent corrections in the market this year, Indian markets continue to trade at a premium, providing a good profit booking opportunity for FPIs.

Factors Driving FPI Cautiousness

Himanshu Srivastava, Associate Director - Manager Research, Morningstar India, notes that FPIs turned cautious ahead of the release of the minutes of FOMC meeting, combined with a series of disappointing economic data in the US, indicating a slow pace of moderation in inflation. This has fanned concerns that the Fed will have to continue raising rates longer than expected.

Changes in FPI Sectoral Investment

In terms of sector, FPIs have bought capital goods, IT, and healthcare in the first half of February, while selling in oil & gas, metals, and power. This is a clear change from January, where FPIs were selling in financials. In the first half of February, FPIs also turned buyers in financials.

Investment in Debt Markets

On the other hand, FPIs have invested Rs 2,819 crore in the debt markets during the period under review. This indicates that FPIs are looking for safer investment options amidst uncertainty in the equity markets.

Pace of selling slows , but concern still remains

FPIs continue to be cautious in their investments in Indian equities amidst rising rates in the US and concerns around inflation moderation. While the pace of selling has slowed down compared to January, it is still a cause for concern for the Indian markets. FPIs have also made changes to their sectoral investments, with a clear shift towards capital goods, IT, and healthcare. Investment in debt markets indicates a search for safer investment options. It remains to be seen how FPIs will continue to navigate the volatile global economic environment and its impact on emerging markets like India.