September has been a challenging month for foreign portfolio investor (FPI) flows, registering the worst performance since January. FPIs have withdrawn Rs 13,837 crore ($1.7 billion) from domestic equities this month, driven by rising US bond yields and surging oil prices. This withdrawal comes after six months of robust inflows amounting to Rs 1.7 trillion ($21 billion), which propelled the Sensex and Nifty indices by over 17 per cent from this year’s lows. Moreover, mid- and small-cap stocks soared more than 40 per cent from their March troughs.
Despite the recent pullback of around 3 per cent in benchmark indices, domestic institutional buying has provided some relief. Equity mutual funds have purchased shares worth over Rs 14,000 crore this month, offsetting the impact of FPI outflows.
The bearish sentiment is not exclusive to India. FPIs are retreating from most emerging markets due to concerns over the trajectory of US interest rates. The 10-year US bond yields have surged nearly 50 basis points, exceeding 4.5 per cent. Furthermore, last week’s hawkish outlook from the US Federal Reserve has exacerbated the selloff, according to experts.
Chetan Seth, equity strategist at Nomura, noted, “The new dot plot projections were more hawkish than anticipated. This sets the stage for further pressure on Asian stocks, given the rising US bond yields and strengthening US dollar.”
UR Bhat, co-founder of Alphaniti Fintech, attributed the FPI pullback to profit-taking and the uncertainty surrounding the upcoming elections in India. “FPIs want to be positioned with sufficient liquidity to capitalise on post-election opportunities, especially since some sectors have performed exceptionally well,” he said.
Higher oil prices are also affecting India’s attractiveness among emerging markets. Brent crude, which averaged below $80 a barrel earlier this year, has jumped 12 per cent in the past month to $94 a barrel.
Andrew Holland, CEO of Avendus Capital Alternate Strategies, said, “High oil prices and rising US yields are leading FPIs to reassess their positions. The upcoming earnings season will be a pivotal moment, particularly for banks, which could either provide momentum or introduce further negativity.”