Significant Shift in FPI Capital Allocation between April 1 and April 15
In a significant financial development, Foreign Portfolio Investors (FPIs) have shown a dramatic shift in capital allocation patterns between April 1 and April 15, during the first fortnight of fiscal 2025-26. Despite being net sellers in the beginning, an influx into emerging markets is anticipated, triggered by a recent depreciation of the dollar and escalating trade tensions.
The Initial Sell-Off
FPIs were actively offloading shares in the domestic equity market, with Information Technology (IT) companies bearing the brunt, followed by financial services and capital goods stocks. Overseas investors net sold around Rs 33,927 crore of local shares in this period. IT stocks alone saw a sell-off worth Rs 13,828 crore, while financial services and capital goods encountered Rs 4,501 crore and Rs 3,019 crore, respectively.
Impact on the Markets
The Bombay Stock Exchange (BSE) benchmark Sensex and Nifty dropped close to 4% between April 1 and 7, weighed down by heavy FPI selling. As Shrikant Chouhan, Head of Equity Research at Kotak Securities, noted, “The bulk of the (FPI) selling was between April 1 and 7 and was primarily due to the concerns about reciprocal tariffs from the US, and thus the Indian currency declined sharply.”
However, a recovery followed, aided by a turnaround in investor sentiment by mid-April as tensions continued.
The Trigger: U.S.-China Trade War
The sell-off was further fuelled by reciprocal tariffs imposed by U.S. President Donald Trump starting April 2. The economic confrontation saw the US imposing a 245% tariff on various Chinese imports, with China retaliating by levying a 125% tariff on US goods.
Vineet Sachdeva from Alpha Alternatives commented, “Although services were not targeted, Indian IT companies were spooked by the prospect of slowdown in the US and therefore cut in IT budgets.”
Emerging Markets: India’s Resurgence
Notwithstanding the initial sell-off, experts foresee a shift towards India and other emerging markets. Factors such as potential economic slowdown in the US, with growth projections below 1%, and similar concerns in China, make countries like India appealing to investors.
VK Vijayakumar, Chief Investment Strategist at Geojit Investments, expressed optimism: “In the last two days, there has been a reversal in FPI flows into India, with overseas investors purchasing Rs 10,824.29 crore worth of domestic stocks.”
The Dollar’s Influence
The dollar index slipping below 100 has also signaled fresh opportunities. “With the dollar depreciating, analysts see money flowing out of the US and into emerging markets, particularly India,” Vijayakumar added.
Broader Implications for FPIs
Besides IT and financial services, FPIs withdrew funds from sectors such as metals & mining (Rs 2,829 crore), oil, gas & consumable fuels (Rs 2,759 crore), and automobile components (Rs 2,562 crore) within the same timeline.
This situation highlights a global sentiment adjustment, driving FPIs to reposition their investments, potentially fostering a more prolific era for emerging markets soon.
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Note: This article is inspired by content from Indian Express. It has been rephrased for originality. Images are credited to the original source.