FPIs dump Indian equities worth Rs 6,300 cr in Apr as US bond yields rise

Foreign investors pulled out domestic equities worth Rs 6,300 crore in April on concerns over tweaks in India's tax treaty with Mauritius and sustained rise in US bond yields.

This came following a whopping net investment of Rs 35,098 crore in March and Rs 1,539 crore in February, data with the depositories showed.

Foreign Portfolio Investors (FPIs) made a net outflow of Rs 6,304 crore in Indian equities this month (till April 26), the data showed.

"The trigger for this renewed FPI selling, in both equity and debt, is sustained rise in US bond yields. The 10-year bond yield now stands at around 4.7 per cent, which is hugely attractive for foreign investors," V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.

While the tweak in India's tax treaty with Mauritius on investments made in India via the island nation continues to bother foreign investors, weak cues from the global markets with uncertain macro and interest rate outlook didn't augur well for emerging market equities, Himanshu Srivastava, Associate Director - Manager Research, Morningstar Investment Research India, said.

Additionally, surge in commodity prices, especially oil and higher US retail inflation dashed hopes of an early rate cut by the US Fed thereby triggering a surge in the US 10-year yield. This would have possibly prompted foreign investors to adopt a wait and watch approach, he added.

The positive factor is that all FPI selling in the equity markets is getting absorbed by domestic institutional investors (DIIs), HNIs (High Networth Individuals) and retail investors. This is the only factor that may reign in FPI selling.

Apart from equities, FPIs withdrew Rs 10,640 crore from the debt market during the period under review.

Before this, foreign investors invested Rs 13,602 crore in March, Rs 22,419 crore in February, Rs 19,836 crore in January. This inflow was driven by the upcoming inclusion of Indian government bonds in the JP Morgan Index.

JP Morgan Chase & Co. in September last year announced that it will add Indian government bonds to its benchmark emerging market index from June 2024.

This landmark inclusion is anticipated to benefit India by attracting around USD 20-40 billion in the subsequent 18 to 24 months.

Overall, the total inflow for this year so far stood at Rs 4,590 crore in equities and Rs 45,218 crore in the debt market.