Aggressive rate hikes by the US Federal Reserve, high inflation and high valuation of equities along with continued to keep foreign investors away from the Indian stock market as they have pulled out Rs 31,430 crore so far this month. With this, net outflows from equities by foreign portfolio investors (FPIs) reached Rs 1.98 lakh crore so far in 2022, data from the depositories showed.
Going forward, rising geopolitical risks, rising inflation, tightening of monetary policy by central banks remain volatile for FPIs in emerging markets, said Shrikant Chauhan, Head-Equity Research (Retail), Kotak Securities. According to the data, in the month of June (till 17th), foreign investors made a net withdrawal of Rs 31,430 crore from equities.
The massive selling by FPIs continued in June as they have been continuously pulling money out of Indian equities since October 2021. Srikanth attributed the latest sell-off to rising inflation, tighter monetary policy by global central banks and higher crude oil prices.
Global investors are reacting to rising risks of a global recession as the US Federal Reserve was forced to raise interest rates by 75 basis points due to rising inflation. Further, it also indicated continuation of its aggressive stance to contain extremely high inflation. “The strengthening of the dollar and the rise in bond yields in the US are the major triggers for the selling of FPIs. As the Fed and other central banks such as the Bank of England and the Swiss Central Bank have raised rates, rates are increasing in sync with rising yields globally. Money is moving from equities to bonds,” said VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
Given this scenario of uncertainty where bonds offer the safety of capital and better returns, it is clear that there will be a flight of capital to safety. TradeSmart President Vijay Singhania said the US markets witnessed the worst weekly decline since March 2020. Domestically too, inflation has been a cause for concern, and to overcome that, the RBI is also increasing rates.
“Aggressive Fed rate hike will likely prompt RBI to hike rates further in the next two or three quarters, which will have a direct bearing on GDP growth and market movement,” said Himanshu Srivastava, Associate Director- Manager Research, Morningstar India. Told. In addition, the geopolitical tensions caused by the war between Russia and Ukraine Does not show signs of resolution. Crude also remained at higher levels. He said that these factors have turned foreign investors away from risk and hence they have stayed away from investing in Indian equities.
Apart from equities, FPIs pulled out a net amount of about Rs 2,503 crore from the debt market during the period under review. They have been withdrawing money from the loan side continuously since February. Srivastava said that from a risk reward perspective and with interest rates rising in the US, Indian debt may not be an attractive investment option for foreign investors.
Apart from India, FPIs are selling heavily in other emerging markets like Taiwan, South Korea, Philippines and Thailand.
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