FPIs inflow in equities drops to ₹7,320 crore in August on higher valuations

FPIs cautious on Indian equities due to high valuations, redirecting investments to cheaper markets and debt for better returns.

Foreign investors have adopted a cautious stance and infused ₹7,320 crore in the Indian equities in August owing to high valuation of stocks and the unwinding of the Yen carry trade after Bank of Japan raised interest rates.

This investment was way lower than ₹32,365 crore in July and ₹26,565 crore in June, according to data with the depositories.

While September is likely to see continued interest from FPIs, the flows would be shaped by a combination of domestic political stability, economic indicators, global interest rate movements, market valuations, sectoral preferences, and the attractiveness of the debt market, Vipul Bhowar, Director Listed Investments, Waterfield Advisors, said.

According to the data with the depositories, Foreign Portfolio Investors (FPIs) made a net investment of ₹7,320 crore in Indian equities in August.

The fundamental reason for the poor FPI interest compared to the preceding two months is the high valuation in the Indian market. With Nifty trading at above 20 times estimated FY25 earnings, India is the most expensive market in the world now.

FPIs have opportunities to invest in much cheaper markets and, therefore, their priority is markets other than India, V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.

Additionally, the unwinding of the Yen carry trade on August 24 significantly impacted FPI behaviour, leading to substantial sell off in Indian equities, Bhowar said.