Delve into the world of Foreign Portfolio Investor (FPI) trends with our comprehensive analysis of April’s market movements. As the global economic landscape continues to evolve, understanding FPI activity provides crucial insights into market dynamics and investor sentiment. In this insightful exploration, we examine the key trends and factors influencing FPI behavior, including recent changes in tax treaties and broader geopolitical developments. Join us as we unravel the intricacies of FPI trends and gain valuable insights into the forces shaping financial markets in April and beyond.
In April, Foreign Portfolio Investors (FPIs) withdrew over Rs 5,200 crore from Indian equities amid concerns over changes in India’s tax treaty with Mauritius. This follows a significant net investment in March and February.
The revision in the tax treaty with Mauritius, aimed at imposing stricter scrutiny on investments made through the island nation, triggered the FPI selling spree. The protocol specifies that tax relief cannot be utilized for the indirect benefit of residents from another country.
Moreover, FPI selling was influenced by factors such as higher-than-expected US inflation, leading to a spike in bond yields, and geopolitical tensions in the Middle East, particularly between Iran and Israel.
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Despite FPI outflows, domestic institutional investors (DIIs) in India hold substantial liquidity, and retail and high net-worth individual (HNI) investors remain optimistic about the Indian market. Consequently, FPI selling is expected to be absorbed by domestic funds.
In addition to equities, FPIs withdrew funds from the debt market during the period under review. This contrasts with their significant investments in March and February, driven by the upcoming inclusion of Indian government bonds in the JP Morgan Index.
The anticipated inclusion in the JP Morgan Index is projected to attract substantial investments in Indian government bonds over the next 18 to 24 months.
Regarding sectoral investments, FPIs sold heavily in IT stocks in anticipation of poor performance in the fourth quarter of FY24. They also divested from FMCG and consumer durables but increased their holdings in autos, capital goods, telecom, financial services, and power.
Overall, while FPI outflows were observed in April, the total inflow for the year so far remains positive, indicating ongoing investor interest in Indian markets.
