Foreign investors continued to leave the Indian equity markets after the Reserve Bank and US Federal Reserve tightened monetary policy, higher oil prices and volatility in the rupee, pulling out around Rs 46,000 crore so far this month.
Net outflows from equities by foreign portfolio investors (FPIs) reached Rs 2.13 lakh crore so far in 2022, data from the depositories showed.
Given the policy normalization story by the US Fed and other major central banks, coupled with higher oil prices and a volatile rupee, FPIs are likely to stay away from emerging market assets, says Hitesh Jain, Lead Analyst – Institutional Equities, Yes Securities , he said.
He added that FPI inflows will resume only when there is visibility on the peak of bond yields in the US and the end of Fed rate hikes.
VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said FPIs are likely to sell more if the current trend of rising dollar and bond yields continues.
According to the data, foreign investors made a net withdrawal of Rs 45,841 crore from equities in June (till 24th).
The massive selling by FPIs continued in June as they have been continuously pulling money out of Indian equities since October 2021.
Manoj Purohit, Partner and Leader, Financial Services Tax, BDO, said, “The tightening of monetary policy by the RBI and the rise in global commodity prices has mainly pushed the domestic markets to adequate cash outflow from equity markets during the last few months. has prompted.” India said.
Such withdrawal speeds were last seen when the pandemic escalated in the first quarter of 2020.
globally, ongoing military conflicts between Ukraine Priest said, and Russia, rising food rates and the return of the pandemic outbreak have added to the fire.
Vijayakumar of Geojit Financial Services said rising US dollar and appreciation of bond yields are the key factors triggering FPI outflows.
Himanshu Srivastava, Associate Director- Manager Research, Morningstar India, said another important factor that has contributed to the outflow from the domestic equity markets is its valuation, which has remained at a premium despite the recent correction, compared to other related markets. In.
As a result, foreign investors have booked profits here and are turning their attention to other markets, which are attractive on the valuation and risk-reward front, he said.
Interestingly, the bulk of FPI sales are in performing sectors such as IT and financial and domestic institutional investors (DIIs), who are absorbing this liquidity.
On the other hand, FPIs invested a net amount of about Rs 926 crore in the debt market during the period under review.
Srivastava said that from a short-term perspective, in view of the ongoing uncertainties, parking investments of FPIs can largely be attributed to net inflows.
Broadly speaking, from a risk-reward standpoint and with interest rates rising in the US, Indian debt does not appear to be an attractive investment option for foreign investors, he said.
Purohit of BDO India believes that this short-term momentum of negative volatility is likely to slow down in the coming weeks if not reversed completely.
“India is still in a better position than other global markets, mainly due to consistent growth pattern, better GDP numbers, recovery of forex reserves, consistent demand from consumers and good financial numbers by large corporates,” he said. They said.
Apart from India, FPIs are selling heavily in other emerging markets like Taiwan, South Korea, Philippines, Indonesia and Thailand.
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