Analysis of FPI Activity Indicates Shifting Investment Trends Amidst Rate Cut Expectations
Foreign Portfolio Investors (FPIs) are reshaping their investment strategies in the Indian market, with a notable shift towards telecom and realty stocks while reducing exposure to the FMCG segment. This trend, highlighted by experts, reflects evolving market dynamics influenced by global factors such as US bond yields and expectations of rate cuts by the Federal Reserve.
According to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, significant FPI activity has been observed, characterized by substantial selling in FMCG stocks and increased buying in telecom and real estate sectors. This strategic realignment suggests a recalibration of investment portfolios in response to changing market conditions.
The fluctuating US bond yields have been a key determinant of investor sentiment, with expectations of rate cuts by the Federal Reserve driving market expectations. Initially, the market anticipated a series of rate cuts in 2024, leading to a downward trend in yields. However, as economic indicators pointed to a tighter labor market, projections were revised downwards, with some experts now predicting only two rate cuts, likely in the latter part of the year.
This adjustment in rate cut expectations has contributed to a spike in the US 10-year yield, reaching 4.4 percent. Such fluctuations in global yields are expected to impact FPI flows into India in the short term, as investors reassess risk-return dynamics in emerging markets.
Despite the challenges posed by rising US bond yields, FPI selling in the Indian market is expected to remain limited. The bullish sentiment prevailing in the Indian stock market, characterized by consistent record-setting performances, offers resilience against external headwinds.
Meanwhile, domestic institutional investors (DIIs) have continued to demonstrate confidence in the Indian market, with eight consecutive months of inflows recorded as of March 2024. Motilal Oswal Financial Services reported DII inflows reaching $8 billion, the highest since April 2020. Additionally, foreign institutional investors (FIIs) also witnessed strong inflows, amounting to $4 billion in March 2024.
As the investment landscape continues to evolve, with shifting global economic trends and monetary policy outlooks, market participants are closely monitoring FPI activity and its implications for sectoral performance and overall market dynamics.
