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Why did FPIs sell FMCG, IT stocks in April? Here's all you need to know

Apart from the bond yields and geopolitical crisis, another trigger for FPI selling was the tweak in India's tax treaty with Mauritius, which would now impose higher scrutiny on investments

FPI, Foreign portfolio investment
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Puneet Wadhwa New Delhi

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Foreign portfolio investors have been on a selling spree in the Indian stock markets in the last few sessions as hopes of an early rate cut by the US Federal Reserve (US Fed) diminished. 

During the four trading sessions ended April 18, FPIs pulled out Rs 18,600 crore from the Indian stock markets. As a result, the Nifty 50 slipped by 3.3 per cent during this period. The monthly FPI-selling tally thus far in April has been greater than this figure in only four calendar months since the start of 2023, according to reports.

Among sectors, FPIs pushed the sell button on defensive stocks such as fast moving consumer goods (FMCG) and information technology (IT), suggests a note from ICICI Securities. On the other hand, they have added cyclicals and capital-intensive stocks such as power, financials, industrials, autos, telecom, realty etc. for the fortnight ending Apr 15, the ICICI Securities note said.

FPIs investments

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"The aforementioned period coincided with the escalation in geopolitical risks (Israel’s attack on April 1 and Iran’s on April 13) and surge in US bond yields (50bps jump to around 4.7 per cent) on ‘higher for longer’ interest rate narrative," Vinod Karki and Niraj Karnani of ICICI Securities said in a recent note.

FPIs investment risks


This atypical behaviour of beta outperforming in a rising global risk environment, Karki and Karnani believe, emanates from an improving near-term growth outlook for domestic cyclicals versus defensives like IT and FMCG. 

"The three factors (size, beta and value) continue to outperform in an environment where growth is driven by investment rate," the ICICI Securities note said.

Apart from the bond yields and geopolitical crisis, another trigger for FPI selling was the tweak in India's tax treaty with Mauritius, which would now impose higher scrutiny on investments made in India via the island nation. READ ABOUT IT HERE

That said, analysts remain bullish on the road ahead for the Indian stock markets from a long-term perspective. In the near-term however, they expect the Indian stock markets to remain choppy on account of domestic and global factors amid rich valuations.

“We remain optimistic on Indian equity markets on medium- to long-term basis. However, valuations make us cautious on the near-term return potential. Valuation excesses are stark in the mid and small cap buckets, driven by hopes on continued strong corporate earnings growth and a stable policy environment,” said Vinay Paharia,CIO,PGIM India Mutual Fund.

Paharia suggests that there is better relative value in the large-cap stocks category and the strong (high growth + high quality) mid-and small-cap companies. These category, he said, still presents an attractive opportunity for long-term investors.

Debt markets

Hotter-than-expected US inflation and the consequent spike in bond yield (the 10-year rising above 4.6 per cent) led to big selling in the Indian cash market by FPIs, said V K Vijayakumar, chief investment strategist, Geojit Financial Services. 

A major trend in FPI activity this month, Vijaykumar said, is that FPIs have turned sellers in debt after sustained buying for several months. 

"In April through 20th, FPIs sold debt worth Rs 12,885 crore. This again is the consequence of the rising US bond yields and the concern regarding rupee depreciation. Coming to portfolio changes, FPIs have been big sellers in the Indian IT sector in April 2024 in anticipation of poor Q4-FY24 results. They were also sellers in FMCG and consumer durables. FPIs were buyers in autos, capital goods, telecom, financial services and power," Vijayakumar added.

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First Published: Apr 23 2024 | 10:42 AM IST

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