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Foreign Portfolio Investors' (FPIs) selling spree continues as they pulled out over Rs 3,400 crore from the Indian equity markets in the first three trading sessions of November on rising interest rates and geopolitical tensions in the Middle East.
This came after such investors withdrew Rs 24,548 crore in October and Rs 14,767 crore in September, data with the depositories showed.
Before the outflow, FPIs were incessantly buying Indian equities in the last six months from March to August and brought in Rs 1.74 lakh crore during the period.
Going forward, this selling trend is unlikely to continue since the main trigger for FPI selling, the rising bond yields, has reversed on the US Federal Reserve signalling a dovish stance in its November meeting.
"The main trigger for this reversal in bond yields is the subtle dovish commentary from Fed chief Jerome Powell that 'despite elevated inflation, inflationary expectations remain well anchored'.
"The market has interpreted this statement as the end of the rate hiking cycle," V K Vijayakumar, chief investment strategist at Geojit Financial Services, said.
According to the data with the depositories, FPIs sold shares to the tune of Rs 3,412 crore during November 1-3.
FPIs have been on a selling spree since the start of September.
"This could be largely attributed to the growing geopolitical tensions due to the conflict between Israel and Hamas, alongside a notable rise in US Treasury bond yields, "Himanshu Srivastava, associate director - manager research, Morningstar Investment Adviser India, said.
Bharat Dhawan, managing partner, Mazars in India, a professional consultancy firm, said, "The global landscape has become significantly more uncertain, with a tripled impact of recessionary concerns, rising inflation, and the outbreak of geopolitical conflicts in the first week of October."
In the current scenario, experts believe that there could be an enhanced focus on safe-haven assets such as gold and US dollars.
On the other hand, the debt market attracted Rs 1,984 crore in the period under review after receiving Rs 6,381 crore in October, data showed.
This approach may represent a tactical move by foreign investors to allocate funds to Indian debt in the short term, with the intention of redirecting capital into the equity markets when conditions become more favourable, Morningstar's Srivastava said.
The inclusion of Indian G-Sec in the JP Morgan Government Bond Index Emerging Markets (GBI-EM) has spurred foreign fund participation in the Indian Bond markets, Sahil Dhingra, smallcase manager and Founder of Alvez Capital, said.
With this, the total investment by FPIs in equity has reached Rs 92,560 crore and Rs 37,485 crore in the debt market this year so far.
In terms of sectors, frontline banking, automobiles, capital goods, and mid-caps in IT and real estate are poised to do well.