In August, the enthusiasm of foreign investors in the Indian stock market was not as prevalent as it had been in the previous months. Foreign portfolio investors (FPIs) adopted a cautious approach, investing only ₹7,320 crore in the domestic stock market during this month. The high valuation of shares and the recent increase in interest rates by the Bank of Japan have led to the end of the yen carry trade, where investors borrow at lower interest rates from one country to invest in assets in another. With these factors at play, the investment in August was significantly lower compared to July, which saw an inflow of ₹32,365 crore, and June, with ₹26,565 crore.
Investment Figures Overview
According to depository data, FPIs made a net investment of ₹7,320 crore in Indian equities during August. The primary reason for the decreased interest from FPIs compared to the previous two months is the high valuations in the Indian market. The Nifty is trading over 20 times its estimated earnings for the fiscal year 2024-25, making India the most expensive market globally. Meanwhile, FPIs also invested ₹17,960 crore in the bond market in August. So far in 2024, the total FPI investment in equities has reached ₹42,885 crore, while the bond market has seen inflows of ₹1.08 lakh crore.
Impact Anticipated in September
Vipul Bhowar, Director of Listed Investments at Waterfield Advisors, expressed optimism for September, suggesting that FPI interest in the domestic market may persist. However, capital flows are expected to be influenced by several factors, including domestic political stability, economic indicators, global interest rate trends, market valuations, regional preferences, and the attractiveness of the bond market. Furthermore, the cessation of the yen carry trade on August 24 has significantly impacted FPI behavior, leading to substantial selling in domestic equities.
FPIs Shifting to Other Markets
On the other hand, VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted that FPIs see attractive investment opportunities in cheaper markets outside of India. Interestingly, FPIs have been in a selling mode in the stock market, where valuations are perceived as high. Instead, they are channeling their investments into the primary market, where valuations are relatively more favorable. Moreover, the focus of FPIs has been primarily on the bond market, as the Indian rupee has remained stable this year, with expectations for continued stability.
Factors Encouraging FPI Bond Investments
Analysts believe that inclusion in global bond indices, attractive interest rates, stable economic growth, and a favorable long-term outlook have been significant reasons driving FPIs toward bond investments. Nimesh Chandan, Chief Investment Officer at Bajaj Finserv Asset Management Ltd., stated that India’s inclusion in global bond indices and attractive yields have been pivotal in attracting capital inflows.
Summary of FPI Activity
| Month | Equity Investment (₹ Crore) | Bond Investment (₹ Crore) | Total FPI Investment (₹ Crore) |
|---|---|---|---|
| June | 26,565 | — | 26,565 |
| July | 32,365 | — | 32,365 |
| August | 7,320 | 17,960 | 25,280 |
