After pouring a whopping amount into Indian equities in the past three months, foreign investors have slowed down the pace of inflow to Rs 12,262 crore in August on higher crude oil prices and resurfacing of inflation risks.
"FPIs are adopting a 'wait and watch' approach rather than making a complete U-turn. There continues to be uncertainty in the global economy and the underlying scenario is fast changing. This will make the flows from FPIs volatile," Himanshu Srivastava, Associate Director - Manager Research, Morningstar India, said.
According to the data with depositories, Foreign Portfolio Investors (FPIs) invested a net amount of Rs 12,262 crore in Indian equities in August. This figure includes investment through the primary market and bulk deals, which have been gathering momentum recently.
This is the lowest investment in the last four months. Before this investment, FPIs invested over Rs 40,000 crore each in the past three months in Indian equities.
The net inflow by FPIs was at Rs 46,618 crore in July, Rs 47,148 crore in June, and Rs 43,838 crore in May. Before that, the inflow amount was Rs 11,631 crore in April and Rs 7,935 crore in March, data with the depositories showed.
Srivastava attributed the slowdown in FPI investment in August to concerns on the global macroeconomic front, with higher crude oil prices and resurfacing of inflation risks.
Additionally, firming up of bond yields in the US would have also led some foreign investors to drift away from riskier markets in favour of greater certainty and better risk-reward profile offered by US treasuries, he said.
Also, the intermittent rally in the Indian equity markets could have resulted in its valuation going beyond the comfort level of a few investors, he added.
"FPIs have been sellers in most emerging markets in August mainly due to this double whammy of rising dollar and rising bond yields. Profit booking in financials also contributed to FPI selling," V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said.
Mayank Mehraa, smallcase manager and principal partner at Craving Alpha, said the slowdown in inflow can be attributed in part to a specific group of investors, Private Equity (PE) funds.
"Many of these PE funds manage investments on behalf of clients, including conservative institutions like endowment funds. These endowments typically seek consistent and low-risk returns to support long-term financial goals, such as scholarships or charitable endeavours," he added.
Apart from equities, FPIs invested Rs 7,732 crore in the country's debt market last month.
With this, the total investment by FPIs in equity has reached Rs 1.35 lakh crore and close to Rs 28,200 crore in the debt market this year so far.
In terms of sectors, FPIs have been consistently buying capital goods. Recently, they have been buyers in healthcare too.