Foreign Portfolio Investors (FPIs) have been showing a decline in interest in the Indian equity market, with net foreign investment in August dropping to Rs 7,320 crore, the lowest in three months. This is a drastic decrease from July, when FPIs had invested Rs 32,365 crore. Throughout August, foreign investors were mostly net sellers in the Indian equity market. However, there was a significant shift on August 30, when FPIs made a record net investment of Rs 14,518.14 crore in a single day, turning the overall monthly investment positive. The last week of August saw foreign investors making a record net investment of Rs 23,585.92 crore in the equity market, which ultimately turned the overall investment in the month to a positive.
One of the primary reasons for the decline in FPI interest in the Indian market is the high valuation, with Nifty trading at above 20 times estimated FY 25 earnings, making India the most expensive market in the world currently. This has led FPIs to seek investment opportunities in cheaper markets other than India. While they have been consistent sellers in the cash market due to the high valuations, they have been actively investing in the ‘primary market and others’ category. Valuations in the Indian equity market have risen to relatively high levels, prompting FIIs to exercise caution in their investments in India, and instead focus on sectors such as healthcare and FMCG.
On the debt market front, there has been a strong buying trend among FIIs, attributed to India’s inclusion in JP Morgan’s Emerging Market government bond indices in June. FPIs, who invest in foreign financial assets, play a crucial role in influencing market dynamics by channelling substantial funds into the Indian equity market. Experts have observed that FIIs have been selectively investing in defensive market segments and are cautious given the high valuations in the Indian market. This trend has led to a decline in FPI investment in Indian equities in recent months.
Overall, while FPI investment in Indian equities saw a decline in August compared to July, there were instances of increased investment towards the end of the month, ultimately turning the overall investment for the month positive. The fluctuations in FPI investment highlight the impact of market conditions and valuations on foreign investor interest in the Indian equity market. As India’s market continues to evolve, it will be crucial to monitor FPI activities and investment trends to understand their impact on market dynamics and overall investment sentiment.
