In May, FPIs withdrew Rs 17,000 cr from equity due to political unpredictability in the wake of the general election

According to Trivesh D, COO of Tradejini, FPIs may take a cautious approach until the election results are known, but if favorable outcomes and proven political stability occur, they may return in substantial numbers.

During every trading day this month, foreign portfolio investors (FPIs) have been sustained sellers while domestic institutional investors (DIIs) have become persistent purchases.

In the first ten days of the month, foreign investors withdrew a staggering Rs 17,000 crore from Indian stocks due to the general election's uncertain result, high valuations, and profit-booking. This surpassed a net outflow of Rs 8,700 crore for the whole month of April due to worries about a change in the tax treaty between India and Mauritius and a persistent increase in the rates on US bonds.

Prior to that, FPIs invested a total of Rs 1,539 crore in February and Rs 35,098 crore in March. Looking forward, corporate India is expected to be rewarded for its outstanding financial performance in Q4 FY24, after the general elections. According to Trivesh D, COO of Tradejini, FPIs may take a cautious approach until the election results are known, but if favorable outcomes and proven political stability occur, they may return in substantial numbers.

Data from the depositories indicates that, until May 10th, there was a net outflow of Rs 17,083 crore from the equity holdings of Foreign Portfolio Investors (FPIs). This strong selling by FPIs is the result of many factors. Investors are hesitant to join the markets prior to the election results because of the current general election and the uncertainty surrounding its conclusion. Says Himanshu Srivastava, Morningstar Investment Research India's Associate Director-Manager of Research.

Furthermore, he said that many investors would have seen this as a chance to book a profit and hold off until further information on the political climate of the nation became available, given that Indian markets are already trading at very high valuations. According to Krishna Appala, smallcase manager & senior research analyst at Capitalmind, "FPIs have shifted to a risk-off mode despite the current political uncertainty in India alongside the US interest rates still appealing."

According to Tradejini's Trivesh, another explanation would be profit booking by FPIs ahead of a market downturn, especially on results day. There is doubt about the likelihood of an early rate decrease given the US Fed's worldwide policy of holding off on cutting interest rates until inflation declines. It caused the US currency to appreciate, which in turn caused the yield on US Treasury bonds to rise. However, during the reviewed period, FPIs removed Rs 1,602 crore from the debt market.

Prior to this withdrawal, foreign investors made contributions of Rs 19,836 crore in January, Rs 22,419 crore in February, and Rs 13,602 crore in March. The impending addition of Indian government bonds to the JP Morgan Index was the primary driver of this influx. In September of last year, JP Morgan Chase & Co. said that starting in June 2024, it would include Indian government bonds into its benchmark emerging market index. It is expected that India would gain from this historic inclusion, which will bring in between USD 20 and $40 billion over the next 18 to 24 months.

According to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, FPIs have been continuous sellers while domestic institutional investors (DIIs) have become sustained buys in all trading days this month. Thus far, DII purchases have totaled Rs 19,410 crore. FPIs had taken out a net total of Rs 14,860 crore in stocks so far in 2024. However, they made debt market investments totaling Rs 14,307 crore.