Foreign investors net sold Indian equities worth nearly Rs 14,475 crore in September, according to NSDL data. This significant sell-off by Foreign Institutional Investors (FIIs) has raised concerns among market participants, especially as rising bond yields globally could exacerbate the trend.
VK Vijayakumar, Chief Investment Strategist at Geojit Investments, highlighted that despite the sell-off, FPI investment through the primary market continued, amounting to Rs 1,336 crore in September, bringing the total for the year to Rs 47,183 crore.
The ongoing boom in the primary market contrasts with the secondary market's tepid performance, partly explained by the continued FPI investment in IPOs. Analysts suggest that the Iran-US conflict and its impact on crude prices will significantly influence future FPI flows.
“If the US 10-year inches up to 5%, there can be a sharp correction in equity markets globally. In such a scenario, FPIs may turn sellers and move money to high-yielding bonds.”
VK Vijayakumar, Chief Investment Strategist at Geojit Investments
The 10-year US Treasury yield has risen to over 4.9%, a three-year high, amid a global bond selloff. This rise in yields, driven by inflation concerns and geopolitical tensions, could prompt FPIs to shift investments from equities to high-yielding bonds.
Sudeep Shah, Head of Technical and Derivatives Research at SBI Securities, noted that sustained high crude prices could pressure the rupee and make emerging-market assets less attractive, possibly leading to capital outflows. However, Yes Securities offers a contrarian view, suggesting that the rise in global yields reflects stronger nominal growth and global monetary normalization rather than economic deterioration.
Background
The recent sell-off by FIIs comes amid a backdrop of rising global bond yields and geopolitical tensions, particularly the Iran-US conflict, which have driven up crude prices and inflation concerns. This environment has led to tighter monetary policies and increased bond yields, affecting equity markets worldwide.
As global bond yields rise, investors should closely monitor the impact on equity markets and FPI flows. The interplay between crude prices, inflation, and monetary policy will be crucial in determining the future direction of foreign investments in India.
