FPIs sell Rs 25,744 crore of shares in January

Mumbai: Overseas investors offloaded ₹25,744 crore worth of Indian stocks in January after two straight months of purchases as receding hopes of an interest rate cut by the US Federal Reserve in March led to some risk-off sentiment. Analysts said inflows in February will hinge on the Fed’s commentary on the direction of interest rates after its policy meeting on January 31.

In the past 10 years in February, foreign investors have been buyers on six occasions and sellers on four. In the past two years, February has seen outflows.

Analysts said that chances of faster interest rate cuts are diminishing in the wake of stubborn inflationary pressures, resulting in US Treasury yields firming up.

“The Fed meeting is a key event that will decide the direction of foreign flows,” said Sriram Velayudhan, Senior Vice President, IIFL Securities. “If the commentary is hawkish, there may be a possibility of outflows.”

Foreign portfolio investors (FPIs) have pumped a total of over 75,000 crore into Indian equities in November and December.

Analysts said if there is a larger deviation from expectations on the interest rate cut, there could be sharp swings.“The market was anticipating an early rate cut by US Fed and was surprised by its comments that the central bank would not rush to cut its benchmark interest rate until it is clear that lower inflation will be sustained,” said Himanshu Srivastava, Associate Director – Manager Research, Morningstar Investment Research.Srivastava said HDFC’s unfavourable third quarter results partly triggered foreign outflows in January.

Analysts said foreign investors trimmed exposure to the banking and financial services sector after the December quarter earnings.

“The outflows in current year 2024 have been largely in the banking and financial sector due to the miss in results,” said Velayudhan. “Sebi’s guidelines on ultimate beneficial disclosure norms for foreign investors may have also led to some selling.”

The tightening of the ultimate beneficial ownership norms by Sebi for overseas investors required foreign funds to disclose granular details of entities holding any ownership, economic interest, or exercising control of the entity by January 30. Funds, that do not disclose such information, are required to liquidate their holdings within 180 days after a grace period.

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