Foreign funds continue to flow out of the Indian equity market with FPIs raising more than Rs 35,000 crore so far this month due to the possibility of further aggressive rate hikes by the US Fed and concerns over the appreciation of the dollar.
With this, the net outflow from equity to foreign portfolio investors (FPIs) has reached Rs 1.63 trillion so far in 2022.
Srikanth Chauhan, head of equity research (retail) at Kotak Securities, said FPI inflows into India would remain volatile in the near future in the face of rising crude prices, inflation and tight monetary policy.
VK Vijayakumar, chief investment strategist at Geojit Financial Services, said, “As the mother market, the US, weakens and the dollar strengthens, FPIs may continue to sell in the near future.”
Foreign investors remained net sellers for seven months from April 2022, withdrawing more than Rs 1.65 lakh crore net from equity.
Six months after the sale, FPIs turned into net investors due to market correction in the first week of April and invested Rs 7,707 crore in equities.
However, after a few breaths, they again became net sellers during the April 11-13 holidays and continued to sell in the following weeks.
FPI inflows to date have remained negative in May and dropped equity to Rs 35,137 crore on May 2-20, data from Depositories shows.
“The main reason behind relentless FPI sales is the appreciation of the dollar which has pushed the dollar index above 103. Also, India is the major emerging market where FPIs are sitting on big profits and the market is too liquid to exploit FPI sales,” said Vijay Kumar.
Himanshu Srivastava, associate director-manager research at Morningstar India, said foreign investors continued to worry about the possibility of a more aggressive rate hike by the US Fed.
The US Fed has raised rates twice this year to fight rising inflation caused by disruptions in supply chains caused by the war between Russia and Ukraine.
“Due to the war, geopolitical tensions have also increased, prompting investors to be risk-averse and stay away from emerging markets like India, which are considered relatively risky. And in the current risk-averse environment, foreign investors would find profit booking a good option, “said Srivastava.
On the domestic front, too, concerns over rising inflation, as well as further rate hikes by the RBI and its impact on economic growth, have taken on a larger scale.
Vijay Singhania, chairman of TradeSmart, said: “What investors feared was the impact of inflation on the sharp and sharp fall in retail sales.
In addition to equities, FPIs withdrew Rs 6,133 crore from the debt market during the period under review.
With central banks struggling to control inflation, high volatility will continue to be part of the routine, Singania said.
In addition to India, other emerging markets including Taiwan, South Korea, Indonesia and the Philippines witnessed outflows in May to date.