Foreign Portfolio Investors Turn Net Sellers in Indian Stocks Amid Geopolitical Tensions

Foreign portfolio investors (FPIs) turned net sellers in Indian stocks in April 2024, selling Rs 8,671 crore, after being net buyers in February and March. The shift in FPI sentiment was primarily driven by the ongoing geopolitical crisis in the Middle East and strong US bond yields, which likely pushed investors to take money off their portfolios.

Prior to this, FPIs had been net buyers, accumulating stocks worth Rs 66,135 crore in December 2023 and Rs 9,001 crore in November 2023, which supported the benchmark stock indices to reach all-time highs. However, before November 2023, FPI participation in Indian stocks was lukewarm, and they had turned net sellers, selling Rs 14,768 crore and Rs 24,548 crore in September and October 2023 respectively.

Despite the FPI selling in April, Indian stock indices maintained their gains, helped by robust US markets, a better investor mood, and a relative ease in Middle East tensions. The Nifty and Sensex indices saw slight increases, with the Nifty auto sector being the top mover. Volatility returned to Indian stock markets after a smooth rally at the start of April, primarily driven by FPI selling activity. However, the bull market remained resilient, with domestic institutional investors (DIIs) and retail investors outsmarting the foreign institutions.

Why this matters: The impact of geopolitical tensions and global economic factors on foreign portfolio investments in India highlights the interconnectedness of global financial markets. Shifts in FPI sentiment can significantly influence the performance of Indian stock indices and the overall investment climate in the country.

The recent tensions between Israel and Iran have become a new source of concern and uncertainty for the region and the rest of the world. The escalation of geopolitical tensions in the Middle East contributed to a spike in crude oil prices, which poses upside risks to India's WPI and CPI inflation forecasts. A sustained surge in crude oil prices could also exert a drag on GDP growth during the fiscal, both through curtailed consumption as well as weaker corporate margins. An escalation of the conflict may impact foreign portfolio investor inflows to India, as well as FDI, FPI, and remittances from neighboring Middle East countries.

Key Takeaways

• FPIs turned net sellers in Indian stocks in April 2024, selling Rs 8,671 crore.
• FPI sentiment shifted due to geopolitical crisis in Middle East and rising US bond yields.
• Indian stock indices maintained gains despite FPI selling, aided by robust US markets.
• Volatility returned to Indian stock markets due to FPI selling, but bull market remained resilient.
• Geopolitical tensions in Middle East pose risks to India's inflation, growth, and foreign investments.