Foreign investors continued their relentless selling in the Indian equity markets in August, offloading shares worth Rs 21,201 crore due to the unwinding of the yen carry trade, recession fears in the US and ongoing geopolitical conflicts.

This came after an inflow of Rs 32,365 crore in July and Rs 26,565 crore in June, data with the depositories showed.

Foreign portfolio investors (FPIs) infused funds in these two months on the expectation of sustained economic growth, continued reform measures, better-than-expected earnings season and political stability.

Before that, FPIs withdrew Rs 25,586 crore in May on poll jitters and over Rs 8,700 crore in April on concerns over a tweak in India's tax treaty with Mauritius and a sustained rise in US bond yields.

According to the data, FPIs withdrew a net amount of Rs 21,201 crore in equities so far this month (August 1-17).

So far this year, FPIs invested Rs 14,364 crore in equities, data with the depositories showed.

FPI outflows witnessed in August were mainly driven by a combination of global and domestic factors.

"Globally, concerns about the unwinding of the Yen carry trade, potential global recession, slowing economic growth, and ongoing geopolitical conflicts led to market volatility and risk aversion," Vipul Bhowar, Director of Listed Investments, Waterfield Advisors, said.

The outflow was triggered due to the unwinding of the Yen carry trade after the Bank of Japan raised interest rates to 0.25 per cent.

Domestically, after being net buyers in June and July, some FPIs might have chosen to book profits following a strong rally in previous quarters.

Additionally, mixed quarterly earnings and relatively higher valuations have made Indian equities less attractive, Bhowar added.

Himanshu Srivastava, Associate Director, Manager Research, Morningstar Investment Research India, said the post-budget announcement of an increase in capital gains tax on equity investments has largely fuelled this selling spree.

In addition, FPIs have been cautious due to the high valuations of Indian stocks, coupled with global economic concerns like rising recession fears in the US amid weak jobs data, uncertainty over the timing of interest rate cuts, and the unwinding of yen carry trade, he added.

A significant trend in FPI flows recently, which became pronounced in August, is the sustained selling by them through the exchange while continuing to invest through the 'primary market and others' category. This difference in FPI behaviour is due to the differences in valuations.

"The primary market issues are at comparatively lower valuations, while in the secondary market, the valuations continue to remain high. So, FPIs are buying when securities are available at fair valuations and selling when the valuations get stretched in the secondary market," said VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

On the other hand, FPIs invested Rs 9,112 crore in the debt market in August so far. This has taken the tally to Rs 1 lakh crore so far in 2024.

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