FPIs begin New Year in sell-off mode; withdraw ₹5,900 cr from equities in a week

Foreign investors pulled out nearly ₹5,900 crore from Indian equity markets in the first week of January on rising concerns over re-emergence of Covid in some parts of the world and fears of recession in the US.

Foreign portfolio investors (FPIs) have been taking a cautious approach towards the Indian equity markets for the past few weeks.

Going forward, FPI inflows are expected to remain volatile amid concerns over GDP growth, high global interest rates and muted earnings expectations in the third quarter, said Shrikant Chauhan, head of equity research (retail) at Kotak Securities Ltd.

According to depository data, FPIs have made a net withdrawal of Rs 5,872 crore from Indian equity markets during January 2-6.

In fact, foreign investors have been selling for 11 consecutive days, taking the cumulative selling to ₹14,300 crore. This came after a net inflow of ₹ 11,119 crore in December and ₹36,239 crore in November,

Overall, FPIs are expected to withdraw ₹1.21 lakh crore net from Indian equity markets in 2022, rising amid aggressive rate hikes by central banks globally, especially the US Federal Reserve, volatile crude oil, Russia and Ukraine conflict on commodity prices.

This was the worst year for FPIs in terms of inflows, and the withdrawals from equities come after net investments in the preceding three years.

The latest outflow in January can be attributed to concerning signals emanating from both global as well as domestic quarters. Himanshu Srivastava, Associate Director-Manager Research, Morningstar India, said, “Increasing concerns over re-emergence of Covid in some parts of the world and fears of a recession in the US are keeping FPIs away from emerging markets like India.”

Also, amid the ongoing uncertainty, many investors may have also chosen to book profits with Indian markets touching all-time highs in recent days. The money taken out of India is being reinvested in last year’s underperformers like China and Europe, which are doing well now. Clearly, FPI money is chasing lower valuations by selling in overvalued markets like India, said VK Vijayakumar, chief investment strategist at Geojit Financial Services.

If the selling in FPI continues, it will open up opportunities for investors. He said that FPIs would sell stocks in which they are sitting on profits, such as the banking segment.

Last year too, selling of banks by FPIs proved to be a good opportunity for domestic investors. Apart from equities, FPIs sold debt securities worth Rs 1,240 crore during the first week of January.

Apart from India, FPI inflows were negative for Taiwan and Indonesia so far this month, while it was positive for Philippines, South Korea and Thailand.