Foreign investors continued to leave the Indian equity markets and have pulled out over Rs 4,000 crore so far this month, amid continued appreciation of the dollar and rising interest rates in the US. However, the selling momentum by foreign portfolio investors (FPIs) has declined in the past few weeks.
“With oil prices crossing the USD 100 per barrel mark and cracking in refining margins in the markets, expectations of lower inflation improved market sentiment. TradeSmart Chairman Vijay Singhania said the RBI move has helped contain the fall in the rupee. Morningstar India Associate Director- Manager Research Himanshu Srivastava, however, believes that the decline in the pace of net withdrawals by FPIs does not indicate a change in trend as there has been no significant improvement in the underlying drivers.
FPIs have been on a sell-off mode for the last nine months. Hitesh Jain, Lead Analyst, Institutional Equities, Yes Securities, said FPI inflows will resume once there is a clear indication of inflation in the global CPI readings around August-September.
“If the high inflation narrative takes a back seat, there will also be a possibility of softening on rate hikes projected by central banks, which will again bring riskier assets into the reckoning,” he said. According to depository data, FPIs pulled out a net amount of Rs 4,096 crore from the Indian equity market during July 1 to 8.
However, for the first time in several weeks, FPIs bought equity worth over Rs 2,100 crore on July 6. This comes after a net withdrawal of Rs 50,203 crore from equity in June. This was the highest net outflow since March 2020, when they pulled out Rs 61,973 crore.
The net outflow of FPIs from equities has reached around Rs 2.21 lakh crore so far this year – the highest ever. Before that, he pulled out a net worth of Rs 52,987 crore for the entire 2008, the data showed. Massive capital outflows have contributed significantly to the depreciation in the Indian rupee, which recently crossed the 79 per dollar mark.
“The key factors driving FPI sales during the last two to three months are the steady appreciation of the dollar and rising interest rates in the US. “If the rupee consolidates at current levels, which in turn mainly depends on crude oil price, there will be a reduction in FPI sales. But India’s high trade deficit is a matter of concern,” said VK Vijayakumar, chief investment strategist at Geojit Financial Services.
On the other hand, FPIs infused a net amount of about Rs 530 crore into the debt market during the period under review. This net inflow can largely be attributed to parking investments of FPIs from a short-term perspective in view of the ongoing uncertainties, said Srivastava of Morningstar India.
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. Apart from India, FPI inflows were negative for Indonesia, Philippines, South Korea, Taiwan and Thailand during the period under review.
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