The latest outflow was triggered by the unwinding of the yen carry trade after the Bank of Japan raised interest rates to 0.25% and recession fears in the US. File.
| Photo Credit: Reuters

After infusing money during the last two months, foreign investors have turned net sellers as they pulled out over ₹13,400 crore from Indian equities in August so far due to unwinding of the yen carry trade and recession fears in the US.

So far this year, FPIs have made a net investment of ₹22,134 crore in equities, data with the depositories showed.

Going forward, if the market continues to rise, FPIs are likely to press more sales since Indian stock valuations continue to remain elevated, particularly in relation to valuations in other markets, V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.

According to the data, Foreign Portfolio Investors (FPIs) withdrew a net amount of ₹13,431 crore from equities so far this month (August 1-9).

This came following an inflow of ₹32,365 crore in July on expectation of sustained economic growth, continued reforms and better-than-expected earnings season, and ₹26,565 crore in June driven by political stability and the sharp rebound in markets.

Before that, FPIs withdrew ₹25,586 crore in May on poll jitters and over ₹8,700 crore in April on concerns over a tweak in India’s tax treaty with Mauritius and a sustained rise in US bond yields.

The latest outflow was triggered by the unwinding of the yen carry trade after the Bank of Japan raised interest rates to 0.25% and recession fears in the US, Vijayakumar said.

This was further exacerbated by escalating geopolitical tensions, particularly the intensifying conflict between Israel and Iran, which led investors to reduce their risk exposure, Himanshu Srivastava, Associate Director, Manager Research, Morningstar Investment Research India, said.

Additionally, the higher valuation of Indian markets provided foreign investors with an attractive profit-taking opportunity.

Meanwhile, factors such as growing recession fears in the U/S., driven by weak jobs data, and uncertainty surrounding the timing of interest rate cuts led to the outflow from Indian equities, Srivastava added.

For the fortnight ended July 31, FPIs were sustained sellers in financial services. However, they were buyers in IT, autos, capital goods and metals during the period under review.

On the other hand, FPIs invested ₹6,261 crore in the debt market in August so far. This has taken the tally to ₹97,249 crore so far in 2024.