FPIs Make Withdrawals of Rs. 17000 Crore From the Indian Equity Market in the First Half of May

 FPIs withdrew a massive Rs 17,000 crore from Indian equities in early May amid election uncertainty and expensive valuations, offsetting Q1 inflows of over Rs 60,000 crore.

FPIs have withdrawn a staggering Rs 17,000 crore from Indian equities just in the first 10 days of May due to political uncertainty over the ongoing general elections and expensive valuations. 

In the first quarter of 2024, FPIs had bought heavily into the Indian markets, whereas this third quarter has seen them aggressively selling.  This is the complete opposite. From March to February, the FPIs made a net investment of Rs 35,098 crore in equities, while in February, they made only Rs 1,539 crore. 

As the market analysts claim, several factors are pushing the FPIs to exit the Indian stock market. Due to the uncertainty concerning election results and the formation of the new government in the center, investors are becoming more cautious, avoiding fresh positions. 

"Due to the election general and the instability surrounding its results, investors do not feel confident enough to enter markets before the elections," said Himanshu Srivastava, Morningstar Investment Adviser. 

In addition to that, the Indian markets are currently trading at quite high valuations. "The political uncertainty provided a lot of investors with a window to take profit and wait until the political situation gets cleared," Srivastava explained. 

The global dynamics like the tighter US interest rates and a stronger US dollar are other factors that influence FPI outflow from the Indian markets as they switch to a "risk-off" mode as it is observed by Krishna Appala of Capitalmind. 

The huge Rs 17,000 crore outflow in May was much higher than the net withdrawal of Rs 8,700 crore recorded for the entire month of April on the worries about changes to India's tax treaty with Mauritius. 

Despite that, market analysts expect FPIs to flow in large volumes once there is a clear election result and the center is stable enough with a new government being formed. 

"Corporate India's robust financial performance in Q4 FY24 will most probably be rewarded.  On the other hand, before the election's result is clear, FPIs may adopt a cautious stance.  However, favorable outcomes and political stability could lead to the return of FPIs in big numbers," said Trivesh D, COO at Tradejini. 

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In the end, FPIs have withdrawn a net amount of Rs 14,860 crore from Indian equities so far in 2024 after they invested over Rs 60,000 crore in the first quarter.