FPIs net sellers continue to pull out of 25,200 cr in first fortnight of May

As foreign investors pulled out of the Indian equity market in the first fortnight of the month, the relentless selling of Indian stocks continued, as they pulled out of a little over 25,200 crore in the Indian equity market in the first fortnight of this month, on a hike in interest rate and concerns over rising COVID cases. There are headwinds in terms of higher crude prices, rising inflation, tighter monetary policy, etc., that weigh on on the indices. While inflation remains elevated globally, investors are worried about growth expectations. Shrikant Chouhan, Head Equity Research Retail Kotak Securities, said that FPIs flows are likely to remain volatile in the near-term.

Foreign portfolio investors FPIs remained net sellers for seven months to April 2022, withdrawing a huge net amount of over 1.65 lakh crore from equities.

Vijay Singhania, Chairman of TradeSmart, said FPI's stake in Indian companies fell to 19.5 per cent, the lowest since March 2019 because of the selling of FPIs in the coming weeks as heat waves in the market and outside will make investors sweat a bit more.

After six months of selling spree, FPIs turned net investors in the first week of April due to correction in the markets and invested 7,707 crore in equities.

After a short breather, they turned net sellers again during the holiday-shortened April 11 -- 13 week, and the sell-off continued in the subsequent weeks as well.

FPI flows have been negative in the month of May and have sold around 25,216 crore during the month of May 2 -- 13, according to depositories.

In an off-cycle monetary policy review on May 4, the policy repo rate was hiked by 40 basis points bps bps with immediate effect and CRR by 50 bps effective May 21. The US Fed also raised rates by 50 bps on May 4, the biggest hike in two decades.

There were fears that further large rate hikes are likely to come if we go ahead with these developments. This triggered a massive sell-off in the Indian equity markets by foreign investors, which continued this week, said Himanshu Srivastava, Associate Director-Manager Research, Morningstar India.

FPIs have been selling on valuation concerns in India since November 2021. FPIs worry about rupee depreciation. Emerging market equity is negatively affected by the dollar appreciation. FPI flows from India will continue to be triggered by this, said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

FPIs withdrew a net amount of Rs 4,342 crore from the debt market during the period under review.

Indian bonds have become unattractive due to the high yields, as the RBI has been slower in hiking rates compared to the US Fed. Sonam Srivastava, smallcase manager, said that the RBI hikes rates would be more stable once that happens.

Morningstar said that besides the rate hikes by the RBI and the US Fed, the uncertainty surrounding the 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 slow the pace of economic growth, which is also a concern. Other emerging markets, including Taiwan, South Korea and the Philippines, saw outflow in the month of May.