Foreign Investment Trends Amidst India’s Election Uncertainty and US Economic Indicators

Election movement Foreign investors have taken a cautious approach and are observing the ongoing general elections in India. In the first two trading sessions of May, they have invested only Rs 1,156 crore in equities and sold Rs 1,726 crore in debt.

This comes after FPIs withdrew Rs 8,700 crore in April due to concerns over a change in India’s tax treaty with Mauritius and an increase in US bond yields.

In March, they made a net investment of Rs 35,098 crore, and in February, Rs 1,539 crore.(Foreign Investment Trends)

The uncertainty surrounding the election results has made foreign investors wait and watch, according to Himanshu Srivastava, Associate Director – Manager Research, Morningstar Investment Research India.

On the other hand, the US economy’s recent mixed batch of data has not altered perceptions that the economy remains robust, indicating that the Federal Reserve may push its first interest rate cut to later part of the year.

“The latest jobs data in the US indicates a slowing economy and, therefore, rate cuts may be necessitated.

The wage increase falling below 4 per cent also reflects a weakening labour market. From the stock market’s perspective, this is good news.

That’s why the US markets rallied sharply on Friday,” said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

Before this outflow, foreign investors had invested Rs 13,602 crore in March, Rs 22,419 crore in February, and Rs 19,836 crore in January.

The inflow was driven by the upcoming inclusion of Indian government bonds in the JP Morgan Index. JP Morgan Chase & Co announced last year that it would add Indian government bonds to its benchmark emerging market index from June 2024. This landmark inclusion is expected to benefit India by attracting around USD 20-40 billion in the subsequent 18 to 24 months.

Going forward, the flows will be determined by the expectation of where the interest rates are headed, says Himanshu Srivastava. So far in 2024, the total inflow stands at Rs 3,378 crore in equities and Rs 43,182 crore in the debt market.