The foreign portfolio investors (FPIs) have been a significant player in the Indian equity market, with their investments and selling activities influencing market trends. In recent months, FPIs have been net sellers in Indian equities, with significant outflows recorded in October and November 2024. However, the trend seems to have slowed down in December, possibly due to the year-end Christmas holidays.
Despite the selling spree in equities, FPIs have shown robust investments in the primary market, indicating their continued confidence in the Indian market. This trend of selling through stock exchanges and buying through the primary market has been consistent throughout 2024.
Looking ahead to 2025, there are mixed views on the outlook for FPI inflows in Indian equities. Some analysts expect a recovery in FPI flows, supported by a cyclical upswing in corporate earnings, particularly in domestic-oriented sectors. However, elevated valuations and competition from other emerging markets could pose challenges to these inflows.
On the other hand, some analysts are cautious about the potential impact of a strengthening US dollar and US 10-year bond yields on Indian equities in early 2025. Factors such as rich valuations, lower-than-expected corporate earnings, high inflation, and depreciating rupee could also dampen investor sentiments.
In contrast to their activities in the equity market, FPIs have shown a strong preference for the Indian debt market in 2024, with significant investments recorded. The inclusion of India in global bond indices and expectations of interest rate cuts by the US Federal Reserve have fueled FPI interest in Indian debt markets.
Overall, the FPI activity in Indian markets is a dynamic and closely watched aspect of the financial landscape. As the new year approaches, market participants will be closely monitoring FPI trends and their impact on Indian equities and debt markets.
