FPIs remain net sellers in equities in August, global factors and LTCG tax hike

This past week, the Nifty50 climbed 1 per cent, driven by record block deals totalling ₹20,000 crore from promoters, PEs

Foreign Portfolio Investors (FPIs) continued to be net sellers in Indian equities this past week, although the aggressive selling seen in recent weeks may have abated.

In the five trading sessions this past week, FPIs net sold in cash market equities were worth ₹1,700 crore, as jitters in global markets weighed on domestic equities. 

The FPI outflows this month through August 23 stood at ₹16,305 crore, taking the overall equity inflows by FPIs this calendar year to ₹ 19,261 crore, latest depositories data showed.

In July, FPIs had net invested ₹32,365 crore in Indian equities via stock exchanges. 

The past week was significant as it was marked by large block deals worth ₹20,000 crore (in just five days) with promoters and private equity players cashing out or diluting stake through such route. Nifty50 was up 1 per cent last week. 

Exercising caution

In recent weeks, FPIs have been cautious in view of the high valuations of Indian stocks, rising recession fears in the US amid weak jobs data, besides uncertainty over the timing of interest rate cuts, and the unwinding of yen carry trade. 

The post-budget announcement of an increase in long term capital gains tax on equity investments in India has largely fuelled FPI’s selling spree. FPIs have net sold about ₹45,000 crore in equities since July 23, which was the Budget day.

VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said that the trend of FPIs buying stocks through the ‘primary market and others’ category and selling through the exchange continued last week, too. 

In August, FIIs sold equity for ₹28,671 crore through the exchanges and bought equity for ₹12,367 crore through the primary market, he said. 

The logic behind this divergent trend of selling through the exchange and buying through the primary market is the difference in valuations i.e, lower valuations in the primary market and high valuations in the secondary market.

 The Jackson Hole speech of the Fed chief Jerome Powell clearly signals Fed’s pivot, Vijayakumar added. 

The rate-cutting cycle will begin in September and this will provide further resilience to stock markets globally, he noted.

Selling banking shares

Vipul Bhowar, Director Listed Investments, Waterfield Advisors, said that FPIs are selling banking shares due to concerns over slow deposit growth. There are also challenges in Q1FY25 for banks with shrinking margins, deteriorating asset quality, and rising provisions, especially in credit cards, personal loans, and agriculture portfolios, he said. 

Additionally, FPIs were net sellers in metals and mining stocks after the Supreme Court allowed States to levy taxes and royalties on minerals, leading to a rise in operating costs for miners. Auto stocks have performed well in the past few quarters, prompting some profit booking or rebalancing, Bhowar added.

The pharmaceutical sector is bullish due to better-than-expected earnings and a strategic shift towards complex drugs. The FMCG sector is also attracting investors, driven by a significant recovery in rural consumption, supported by favourable monsoon forecasts and government welfare measures for rural economies, which both should sustain, he said. 

Manoj Purohit, Partner & Leader, Financial Services Tax, Tax & Regulatory Services, BDO India, said “Amidst a global slowdown, geo-political crisis in the Middle East and neighbouring countries, India still stands at a sweet spot compelling the foreign fraternity to take a bet for a long-term investment horizon”.

Debt markets 

FPIs continued to show an increased buying interest in debt markets with net inflows of ₹11,366 crore, so far this month. In calendar 2024, FPIs have, till August 2023, invested as much as ₹ 1,02, 354 crore in debt market. 

A large part of the strong buying interest in Indian debt market is India’s inclusion in JP Morgan’s Emerging Market government bond indices in June this year. In July 2024, FPIs had pumped in ₹22,363 crore into the Indian government debt. 

Source:-  The Hindu Business Line