Market sentiment gets a boost as FPI selloff stems in July after 10 months

Inflows from foreign portfolio investors (FPIs) turned positive for the first time in 10 months in July. Between October 2021 and June 2022, overseas players had withdrawn Rs 2.54 trillion (over $32 billion) from domestic stocks.

What led to such record outflows? “Rising global central banks’ rates, rupee depreciation, expensive valuations and geopolitical risks,” says BofA in a note.

In July, while FPI inflows were only marginally positive, their coming in has been a big sentiment booster.

This has helped the domestic markets jump nearly 9 per cent. Cooling commodity prices, softening bond yields and hopes that the US Federal Reserve will slow its pace of monetary tightening have led to the revival.

The 10-year US Treasury yield has come off from over 3 per cent a month ago to below 2.7 per cent, which has underpinned the rally in equities. Experts say markets are hoping that there won’t be a hard landing for the economy.

Also, the worst of inflation is behind us. If it goes wrong on any of these expectations, the market could go through turbulence.