FPIs that have altered their selling strategy in India in response to the decrease in US bond yields have also been forced to suspend their selling due to the resilience of the Indian market. The deepening of the rally in Indian markets following state election results may influence their approach going forward and discourage them from selling.
The recent pattern of regular selling by Foreign Portfolio Investors (FPI) in the markets has reversed. According to NSDL data, foreign portfolio investors were net purchasers in Indian markets in November, investing 8786 crore after being net sellers worth 13810 crore in September and 17875 crore in October. The rising dollar index and higher US bond yields since September have made investments in emerging economies like India less appealing for FPIs. However, the decreasing bond yields and softening of the dollar index have now helped FPI flows into India.
FPIs have reversed their selling strategy in India due to the decrease in US bond yields and the durability of the Indian market over the last six days, and FPIs have been persistent purchasers in India, according to analysts. The drop in 10-year US bond yields to close to 4.25% after reaching 5% is now beneficial for inflows into India. Analysts believe that the election outcome and market rally in India will keep FPI positive, and that FOMO (fear of missing out) would keep them from selling and becoming net buyers.
According to specialists such as Deepak Jasani, Head of Research at HDFC Securities, FPIs are likely to re-calibrate their approach in the days following the election results. While FOMO will be a consideration for FPI, Jasani believes that they would keep an eye on the values of Indian markets. The movement of global interest rates and the outcome of the FOMC (Federal open market committee) meeting on the following day will be crucial. Other elements that FPI will watch before voting on account (Budget 2024) will be the Q3 results in January. The values of Indian markets have become stretched, which indicates that the FPI may be choosy in their purchases, according to analysts.
Going forward, FPI response will be heavily driven by market trends, which are in turn influenced by state election results. FPIs may become sellers at greater market levels, however, because overall market valuations have reached high levels. They may invest in financials where valuations are reasonable, according to Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
"We believe that near-term market interest will be strong, driven by a rebound in industrial growth and a benign interest rate trajectory." The events of yesterday have reduced risk for investors in the short term, and they can anticipate a positive year-end. "In the medium term, critical market risks remain higher than historical valuation levels, as do potential global slowdowns, particularly in the United States, China, and Europe," said Pranav Haridasan, MD & CEO of Axis Securities.
Bond yields are falling and should be closely monitored. Though the reduction is being linked to no more rate hike predictions, economists believe another reason for the decline is because demand is poor and there is some recessionary influence. Analysts believe that any recessionary impact will be negative for markets.
