Wary of the scenario on the global and domestic fronts, foreign investors continued to withdraw from Indian equity markets and pulled out close to Rs 14,000 crore in this month so far.
With this, net outflow by foreign portfolio investors (FPIs) from equities reached Rs 1.81 lakh crore so far in 2022, data with depositories showed.
Going forward, the FPIs’ selling may continue in the near-term, however, a moderation in sell-off is expected during short to medium-term, Vinod Nair, Head of Research at Geojit Financial Services, said.
”This is because a large part of the changeover like economic slowdown, hawkish monetary policy, supply constraints and high inflation is factored in, in the market prices, which was consolidating over the last 7 months. And for central banks to maintain the aggressive policy in long-term, the inflation must remain high,” he added.
According to the data, foreign investors withdrew a net amount of Rs 13,888 crore from equities during June 1-10. FPIs have been incessantly withdrawing money from Indian equities since October 2021. Nair attributed the latest FPI outflow to anticipation of a hawkish Federal Reserve meeting.
”Global markets witnessed selling pressure in anticipation of record high inflation numbers in the US, which could force the Fed to accelerate increasing interest rates. At 8.6 percent, the US inflation is at a 40-year high.
Talks of stagnation and China announcing another round of lockdowns all weighed down on investors, prompting another round of selling,” Vijay Singhania, Chairman, TradeSmart, said.
In addition, RBI also increased repo rate by 50 basis points and revised upwards its inflation projection. The central bank expects inflation to remain above 6 percent for three quarters which will add pressure on bond yields.
These factors encouraged foreign investors to continue their walk out of the door, he added.
Apart from equities, FPIs withdrew a net Rs 600 crore from the debt market during the period under review. They have been incessantly withdrawing money from the debt side since February.
From the risk reward perspective and with interest rates rising in US too, Indian debt may not offer an attractive investment option to foreign investors, Himanshu Srivastava, Associate Director – Manager Research, Morningstar India, said.
Apart from India, other emerging markets, including Taiwan, South Korea, Thailand and the Philippines witnessed outflow in this month so far.