Adopting a cautious stance, foreign investors pulled over Rs 4,500 crore from the Indian equity market last week on fears of an aggressive rate hike by the US Federal Reserve.
This comes following a net investment of Rs 7,707 crore by foreign portfolio investors (FPIs) during April 1-8 as a correction in the markets provided a good buying opportunity, data with depositories showed.
Before that, FPIs remained net sellers for six months to March 2022, withdrawing a massive net amount of Rs 1.48 lakh crore from equities.
These were mainly on the back of anticipation of a rate hike by the US Federal Reserve and the deteriorating geopolitical environment following Russia’s invasion of Ukraine.
Sonam Srivastava, Founder at Wright Research, a SEBI-registered investment advisor, said, “We are hoping for FPIs to come back to India in a big way when the Ukraine crisis eases as our valuations have become highly competitive”.
According to depositories data, FPIs have pulled out a net sum of Rs 4,518 crore from Indian equities during the holiday-shortened April 11-13 week.
Markets were closed on April 14 and April 15 on account of Ambedkar Jayanti and Good Friday, respectively.
During the holiday-truncated week, FPIs turned net sellers on fears of an aggressive rate hike by the US Fed, which came back to haunt the markets.
This could have prompted investors to adopt a cautious stance towards their investments in emerging markets like India until greater clarity emerges, Himanshu Srivastava, Associate Director – Manager Research, Morningstar India, said.
Apart from equities, FPIs withdrew a net Rs 415 crore from the debt markets during the period under review after infusing a net sum of Rs 1,403 crore in the preceding week.
“The sellout by FPIs was in line with the global rout in equity markets caused by the concerns about the FED hiking rates. In addition, the inflation numbers for India that came out last week were above expectation, and they further dampened sentiment. The RBI is also seen shifting its stance towards tightening, which could stress the equity markets,” Wright Research’s Srivastava said.
Manoj Trivedi, Co-founder of Jama Wealth, said the ongoing sell-off is not because of India-specific factors. It seems more out of a desire to move to safer havens, given the various uncertainties such as the ongoing war, rise in domestic (US) interest rates and anticipated lower returns in dollar terms because of a likely fall in Rupee value.
Given the fast-changing global landscape, foreign flows into Indian equities could shift depending on how the underlying scenario changes, Morningstar India’s Srivastava said.
Last month, US Fed hiked rates by a quarter percentage point for the first time since 2018, thus finally ending its ultra-easy pandemic-era monetary policy and indicating a series of more rate hikes this year. The war between Russia and Ukraine is still going on.
Also, there is uncertainty around US Fed’s next move.