January Blues: HDFC Bank Woes Trigger Largest FPI Outflow In One Year

Financial services, fast-moving consumer goods, and automobile and auto components recorded the biggest foreign outflows in January as overseas investors turned sellers of Indian stocks.

Media, entertainment and publication, and metals and mining also ranked among the top sectors with the highest outflows from foreign portfolio investors. Information and technology and, oil and gas witnessed net inflows during the month, according to data from the National Securities Depository Ltd.

January's foreign portfolio investment outflows can be linked to people's disappointment with HDFC Bank Ltd., Helios Capital Asset Management (India) Pvt.'s Samir Arora told NDTV Profit in a recent interview.

Arora pointed out a significant improvement in the relative position of Indian markets, attributing increased investment inflows to India to the frustration observed in Chinese markets.

Overseas institutional investors offloaded $3,096 million, or Rs 25,744 crore, worth of stocks in January. This is the highest outflow in a year, the NSDL data showed. The overall market experienced a positive inflow of Rs 5,000 crore, only the financial services sector saw a significant Rs 30,000 crore outflow, which resulted a change in the overall flows

Foreign investors turned net sellers due to a surge in U.S. Treasury yields and receding hopes of an interest rate cut by the Federal Reserve in March.

Foreign investors have sold Indian equities worth Rs 23,463 crore till Feb. 5 this year.

The FPI's have consistently sold off shares in January over the past two years. In January 2023, they withdrew Rs 28,852 crore, and a similar trend was seen in 2022 with a selloff of Rs 33,303 crore from the equity market.

Rate cuts in the near term seem distant since the US data is strong, due to which 10-year US Treasury yields are moving higher and elevated bond yields have prompted outflows from equity to high-yielding US bonds, according to Kunal Sodhani, vice president of Shinhan Bank. "So, rate trajectory remains (an) important element."

Sodhani said the Indian bond markets seem to be attractive amid expectations of more inflows after the country's inclusion in JPMorgan's Government Bond Index-Emerging Markets.

Overseas investors in January offloaded more Indian shares than in any other emerging market, according to Bloomberg data.

India was the largest recipient of FPI flows last year among emerging markets. The FPIs were sellers in Thailand, the Philippines, Indonesia, Malaysia and Vietnam.

In contrast, the Indian debt market attracted its biggest monthly foreign inflows in over six years in January, fuelled by the inclusion of government bonds in the JPMorgan index.

The FPIs infused Rs 19,837 crore in January, according to the NSDL data. The previous highest monthly inflow by the FPIs was recorded in June 2017, with an inflow of Rs 25,685 crore.