According to news agency PTI, foreign investors withdrew around 6,400 crore from the Indian equity market in the first four trading sessions of the current month. After the Reserve Bank of India (RBI) and the US Federal Reserve boosted interest rates.
According to Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities, FPI flows in India are projected to remain erratic in the short term. Due to headwinds such as high petroleum prices, inflation, and tight monetary policy, among others.
This comes at a time when Foreign Portfolio Investors (FPIs) have been net sellers for the past seven months. Removing a colossal amount of over Rs.1.65 lakh crore from the stock market. This was largely due to expectations of a US Federal Reserve rate hike. And the deteriorating geopolitical environment following Russia’s invasion of Ukraine.
Following a six-month selling run, FPIs became net investors in the first week of April when markets corrected, investing Rs 7,707 crore in stocks. They turned net sellers after a brief respite during the holiday-shortened April 11-13 week, and the sell-off persisted in subsequent weeks.
It is vital to note that FPI flows have been negative in May to far, with FPIs selling roughly 6,417 crore between May 2 and 6, according to depositories’ statistics. The market was closed on May 3 in observance of Eid.
FPIs pull with more interest
Vijay Singhania, Chairman, TradeSmart, said. “With central banks across the world pressing the panic button and increasing interest rates, equity markets have also reciprocated the sentiment. Foreign investors continue to sell relentlessly.”
Morningstar India’s Associate Director – Manager Research, Himanshu Srivastava, described the week as “eventful.” On May 4, the RBI raised the policy repo rate by 40 basis points with immediate effect and the cash reserve ratio by 50 basis points with immediate effect in an off-cycle monetary policy review. The markets reacted strongly to this, and they have been on a downward trend ever since.
The US Federal Reserve, on the other hand, boosted rates by 50 basis points on the same day, the largest increase in two decades. It stoked fears among investors that more significant rate hikes are on the way, he added.
The Bank of England also raised its main interest rate to its highest level since 2009. In addition, the market anticipates 10% inflation in the United Kingdom. Concerns over COVID-19 in China could also disrupt global supply networks and slow growth. According to Chouhan, this causes foreign investors to return to their own nation.
FPI withdrawl goes big
FPIs withdrew a net amount of 1,085 crore from the debt market during the period under review, in addition to stocks. Market volatility is likely to stay high in the future, since international investors may continue to withdraw cash. Selling is predicted to continue unless the battle is called off, according to TradeSmart’s Singhania.
According to Morningstar’s Srivastava, there is currently nothing that would encourage foreign investors to participate in Indian equities markets.
“Besides the rate hikes by both RBI and US Fed. Uncertainty surrounding Russia-Ukraine war, high domestic inflation numbers, volatile crude prices. And weak quarterly results does not paint an incredibly positive picture. The recent rate hikes could also slow the pace of economic growth, which is also a concern”. He said.
The recurrence of coronavirus outbreaks in China and other parts of the world is adding to the concern. FPIs often become risk adverse in such situations and take a wait-and-see approach until more clarity emerges, he noted.
Foreign flows into Indian shares may remain under pressure. Until the fundamental motivations and investment scenario alter, he noted. Given the current circumstances and rapidly changing global landscape.
Apart from India, other rising economies such as Taiwan, South Korea, and the Philippines have all experienced outflows in April.