Foreign portfolio investors (FPIs) ended their April selling streak and became net buyers of Indian stocks, but selling continued in the debt market. Last month, FPIs adjusted their net sales in Indian markets since they reduced their buying momentum with the start of the new financial year 2024-25 (FY25).
Invested REITs ₹1,156 crores of Indian shares and the total outflow amounts to ₹771 crore as of May 3, taking into account debt, hybrids, debt-VRR and equity, according to data from National Securities Depository Ltd (NSDL). Total debt outflows amount to ₹1,727 crores so far this month.
“Over the two trading days in May, REITs invested ₹1,156 crores equity and sold ₹1,726 crore debt (Source: NSDL). The rise in the VIX is indicative of potential volatility. The market can become very volatile in the short term,” said Dr VK Vijayakumar, chief investment strategist at Geojit Financial Services.
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Will the influx of REITs continue into Indian markets?
Market analysts said the U.S. Federal Reserve’s decision signals much lower rate cuts than forecast earlier this year. Inflation has become stubborn at lower levels. However, the latest US employment data indicates a slowing economy and therefore rate cuts may be necessary.
“Wage increases falling below four percent also reflect a weakening labor market. From a stock market perspective, this is good news. This is why US markets recovered sharply on Friday,” said Dr VK Vijayakumar.
The market is reaching record levels. There was a pre-election rally. It’s not as strong as it used to be. More than anything else, REITs will react to changes in U.S. bond yields. If US bond yields fall and India’s economy and markets do well, they will become aggressive buyers, the analyst said.
Experts also pointed out that the positive factor is the fact that all FPI sales in the equity markets are absorbed by DIIs, HNIs and retail investors. This is the only factor that could influence REIT selling in the near term for now, they add.
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REIT activity in Indian markets
FPIs discharged ₹8,671 crore in Indian stocks last month and ₹10,949 crore in debt markets compared to high US bond yields. However, they pumped ₹35,098 crore in Indian stocks in March 2024 – the highest inflows recorded in the first three months of 2024. FPI outflows initially declined in February 2024 until becoming net buyers by the end of the month, despite high US bond yields.
The inflow into Indian stocks amounted to ₹1,539 crores in February 2024 and the investment in the debt market has increased to ₹22,419 crores during the month in addition to ₹19,836 crore purchased in January. The inclusion of government bonds in the JPMorgan and Bloomberg debt indices has particularly triggered inflows of foreign funds into debt markets. REITs became massive sellers in January 2024, ending their buying streak, while investments saw a sharp rise in December 2023 after reversing their three-month selling streak in November 2023.
However, capital flows intensified in December due to strong global signals after the US Federal Reserve signaled the end of its tightening cycle and raised expectations for a rate cut in March 2024. This led to a collapse in US bond yields and triggered inflows of foreign funds into emerging markets. like India.
For the entire calendar year 2023, REITs have purchased ₹1.71 lakh crore of Indian stocks and the total inflow stands at ₹2.37 lakh crore considering debt, hybrid, debt-VRR and equity, according to NSDL data. The net investment of FPIs in the Indian debt market stands at ₹68,663 crores in 2023.
Disclaimer: The views and recommendations expressed above are those of individual analysts or brokerage firms, and not of Mint. We advise investors to seek advice from certified experts before making any investment decisions.
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