After emerging as net sellers in August, September, and October due to a strong rise in US bond yields amid persistent geopolitical tensions in the Middle East, foreign portfolio investors (FPIs) have finally reversed their selling streak this month.
According to National Securities Depository Ltd (NSDL) data, FPIs purchased 1,433 crore worth of Indian shares as of November 17, bringing the overall inflow to 15,375 crore, which includes debt, hybrid, debt-VRR, and equities.
FPIs were net buyers until November 15, but then reversed course and invested on November 15 and 16. FPIs sold stocks worth 83,422 crore through exchanges in August, September, October, and till November 15.
'The market's tenacity and large up moves on favorable days have forced a reassessment of FPI strategy. That is why, following prolonged selling in the first two weeks of November, they turned purchasers on the 15th and 16th of this month,'' said Dr. V K Vijayakumar, Chief Investment Strategist of Geojit Financial Services.
According to economists, the steep drop in the US 10-year bond yield to 4.45% represents an inflection point for the mother market and, by extension, the global stock markets. FPIs have been buying Indian equities for three months prior to August.
US bond yields have fallen to 4.45%: What is the reason for the change?
Following the latest US Federal Reserve policy decision on November 1, US bond rates have rapidly corrected to 4.66 percent due to Fed Chair Jerome Powell's dovish remarks.
For the second consecutive meeting, the Federal Open Market Committee opted to maintain benchmark overnight interest rates steady at 5.25-5.50 percent, a 22-year high. Other major central banks, such as the Bank of England and the Bank of Japan, have also paused key interest rates, similar to the US Fed.
''The key reason for this turnaround in bond yields is Fed Chairman Jerome Powell's understated dovish commentary that "despite elevated inflation, inflationary expectations remain well anchored," which the market has taken as the conclusion of the rate-hiking cycle. That is why yields have dramatically corrected,'' said Geojits' Dr. V K Vijayakumar.
FPI inflows are likely to continue; here's why markets now assume the Fed is done raising rates and will gradually begin discounting rate decreases in 2024. If the downward trend in US inflation continues, the Fed may decrease rates by mid-2024. According to economists, this can encourage FPI inflows into emerging markets (EMs) such as India.
Analysts also feel that the Indian market is resilient despite a number of obstacles, and there is growing anxiety among FPIs that if they continue to sell, they may miss out on the possible rally in the Indian market. This may prevent FPIs from selling, and inflows are expected to continue in the coming days.
What do market patterns say about FPIs?
A significant market trend is the growing clout of domestic institutional investors (DIIs), high net-worth individuals (HNIs), and retail investors, while FPIs are losing influence. ''DII and individual investor buying has totally offset FPI selling. This is why the Nifty is trading at roughly 19,700, the same level it was at in early August,'' explained Dr. V K Vijayakumar.
The RBI's decision to increase the risk weightage of unsecured loans has influenced mood in the banking and financial sectors. However, this is likely to be short-lived because the profitability of the leading banks will be unaffected. In the short term, institutions will opt to spend more in industries such as automobiles, capital goods, telecommunications, medicines, information technology, and construction-related areas.
