FPIs take a breather; withdraw ₹2,000 cr in first week of August

FPIs pull out Rs 2,000cr from Indian equities in Aug; Fitch downgrading US credit rating, high US bond yields, stretched valuations & profit booking cited as reasons. Inflows in equity & debt markets reach Rs 1.21L cr & Rs 21.6K cr respectively. Auto, capital goods, financials & IT stocks bought; domestic equities likely to see FPIs inflow.

After five months of sustained buying, foreign investors have turned net sellers and pulled out over ₹2,000 crore from the Indian equities in the first week of August, mainly due to Fitch downgrading the credit rating for the U.S. 

In addition, the rich and stretched valuations and minor profit booking could be the reasons for this outflow, Yes Securities Chief Investment Advisor Nitasha Shankar said. 

"A sharp spike in the U.S. 10-year bond yield above 4 per cent is a near-term negative for capital flows to emerging markets," Geojit Financial Services Chief Investment Strategist V.K. Vijayakumar said. 

Explained | Why are FPIs dumping Indian stocks?  

If the U.S. bond yields remain high, FPIs are likely to continue selling or at least refrain from buying, he added. According to the data with the depositories, Foreign Portfolio Investors (FPIs) withdrew a net sum of ₹2,034 crore from Indian equities during August 1-5.

This came after unabated net inflow in the past five months -- from March to July -- following the resilience of the Indian economy amid an uncertain global macro backdrop.

Moreover, FPIs invested over ₹40,000 crore each in the last three months (May, June and July). The net inflow was ₹46,618 crore in July, ₹47,148 crore in June and ₹43,838 crore in May. Before March, overseas investors pulled out ₹34,626 crore in January and February.