FPIs withdraw Rs 8,600 crore from equities in April on Mauritius tax treaty

After infusing money for two straight months, foreign investors turned net sellers in April with the dumping of Indian equities worth Rs 8,700 crore on concerns over a tweak in India's tax treaty with Mauritius and a sustained rise in US bond yields.

This came following a staggering net investment of Rs 35,098 crore in March and Rs 1,539 crore in February, data with the depositories showed. Overall, the total inflow for 2024 so far stood at Rs 2,222 crore in equities and Rs 44,908 crore in debt market.

As per the data, Foreign Portfolio Investors (FPIs) made a net outflow of Rs 8,671 crore in Indian equities.

Kislay Upadhyay, smallcase manager and founder of Fidelfolio, said this outflow was due to adjustment after heavy inflow in March, a short-term gain prospect in longer duration bond in anticipation of a rate cut and 'wait and watch mode adopted by investors till the announcement of election results.

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, a 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 10,949 crore from the debt market during the month under review. "The trigger for this renewed FPI selling, in both equity and debt, is the 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.

Before this outflow, foreign investors put in 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 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.