Continuing their massive sell-off for the ninth month in a row, foreign investors dumped Indian stocks worth Rs 50,203 crore in June – the highest net outflow in two years – due to aggressive rate hikes by the US Federal Reserve, rising inflation and a relatively low rate of domestic market. among high ratings. share. Foreign portfolio investors (FPIs) have now pulled out around Rs 2.2 lakh crore from domestic equities in the first six months of 2022 – the highest ever net withdrawals by them. Earlier, FPIs pulled out Rs 52,987 crore in the entire 2008, data from the depositories showed.
Massive capital outflows have also contributed to the depreciation in the rupee, which crossed the 79 mark against the US dollar for the first time last week. Analysts have warned that FPI inflows are likely to remain volatile in the near future.
Shrikant Chauhan, Head-Equity Research (Retail), Kotak Securities said, “Going forward, we believe inflation tracking to determine trends will be the key driver, as well as the yield gap between bonds and equities. Will be less.’ According to the data, FPIs made a net withdrawal of Rs 50,203 crore from equities in June. This was the highest net outflow since March 2020, when they pulled out Rs 61,973 crore.
FPIs are exiting Indian equities from October 2021. “Aggressive rate hike by US Fed, higher inflation as well as relatively higher valuations of Indian stocks continued to keep foreign investors at bay in the month of June,” said Himanshu Srivastava, Associate Director – Manager Research, Morningstar India.
According to him, the broad sentiment towards India remained negative, prompting foreign investors to extend their cautious stance on domestic equities. Compared to other emerging markets, India With respect to net outflow is worst affected. “The relentless FPI sell-off should be viewed in the context of the ever-increasing dollar and bond yields in the US. FPIs are selling more in countries with rising current account deficit (CAD) like India as the currencies of such countries are vulnerable to further depreciation,” said VK Vijayakumar, chief investment strategist at Geojit Financial Services.
At the end of June, the FPI sales showed a declining trend. If the market picks up in July, expecting or reacting to good first quarter results, FPIs may resell. He said this trend will stop only when the dollar stabilizes and US bond yields decline. TradeSmart Chairman Vijay Singhania said that the equity market seems to be affected by the fall in currencies, especially in the Asian market.
“The quarter ended June recorded one of the worst performances since the 1997 Asian currency crisis. As if that wasn’t bad enough, India was the worst performing currency in Asia,” he said. Kunal Walia, Chief Investment Officer – Listed Investments, Waterfield Advisors, said global central banks are moving towards normalizing interest rates and sharply quantitative tightening, given the risk posed by inflation over the long term.
In a scenario where not only is the cost of capital rising, but the liquidity tap is also drying up, outflows from emerging market assets are causing more volatility and downside, he said. Apart from equities, FPIs were also net sellers in the Indian debt market last month. They were net sellers of Rs 1,414 crore in June, which was much lower than the figure of Rs 5,505 crore in May.
“Broadly speaking, from a risk reward perspective and with interest rates rising in the US, Indian debt does not appear to be an attractive investment option for foreign investors,” said Morningstar’s Srivastava. Apart from India, FPI inflows in June were negative in other emerging markets like Indonesia, Philippines, South Korea, Taiwan and Thailand, he added.
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