Aware of the outlook on the global and domestic fronts, foreign investors continued to pull out of the Indian equity markets, pulling out around Rs 14,000 crore so far this month. With this, net outflows from equities by foreign portfolio investors (FPIs) reached Rs 1.81 lakh crore so far in 2022, data from the depositories showed.
Vinod Nair, Head of Research, Geojit Financial Services, said that in future, FPI selling may continue in the near term, however, a moderation in selling is expected in the short to medium term. “This is because a major part of the changes such as economic slowdown, sharp monetary policy, supply crunch and high inflation is included in the market prices, which were consolidating in the last 7 months. And for central banks to maintain aggressive policy over the long term, inflation must remain high,” he said.
According to the data, during June 1-10, foreign investors made a net withdrawal of Rs 13,888 crore from equities. FPIs have been continuously withdrawing money from Indian equities since October 2021. Nair attributed the latest FPI outflows to anticipation of a fiery Federal Reserve meeting.
“Global markets saw selling pressure in anticipation of record high inflation numbers in the US, which could force the Fed to accelerate rising interest rates. At 8.6 percent, US inflation is at a 40-year high. TradeSmart President Vijay Singhania said, talk of stagnation and China announcing another round of lockdown put pressure on investors, triggering another round of selling. Besides this, RBI also increased the repo rate by 50 basis points and revised its inflation forecast. The central bank expects inflation to remain above 6 per cent for three quarters, which will put pressure on bond yields. These factors encouraged foreign investors to head out the door, he said.
Apart from equity, FPIs pulled out a net Rs 600 crore from the debt market during the period under review. They have been withdrawing money from the loan side continuously since February. Himanshu Srivastava, Associate Director- Manager Research, Morningstar India, said from a risk reward perspective and with interest rates rising in the US as well, Indian debt may not offer an attractive investment option to foreign investors.
Apart from India, other emerging markets including Taiwan, South Korea, Thailand and the Philippines have seen outflows so far this month.