Exodus of foreign money from the Indian equity markets continues to be unabated, with FPIs pulling out over 35,000 crore so far this month due to concerns over the prospects of more aggressive rate hike by the US Fed and appreciation of the dollar.
Foreign Portfolio Investors FPIs from equities reached 1.63 lakh crore in 2022, which is a result of net outflow from foreign portfolio investors.
Shrikant Chouhan, Head Equity Research Retail Kotak Securities said that the FPIs flow in India is going to remain volatile in the near term, given the headwinds in terms of elevated crude prices, inflation, tight monetary policy, and others.
Since the mother market is weak and the dollar is strengthening, FPIs are likely to continue selling in the near term, said V K Vijayakumar, Cheif Investment Strategist at Geojit Financial Services.
Foreign investors stayed net sellers for seven months to April 2022, withdrawing a huge net amount of over 1.65 lakh crore from equities.
After six months of selling spree, FPIs turned net investors into 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 once again during the holiday-shortened April 11 -- 13 week, and the sell-off continued in the subsequent weeks as well.
FPI flows are negative in the month of May and have dumped equities worth Rs 35,137 crore during May 2 -- 20, according to depositories.
The appreciation of the dollar has taken the dollar index above 103, which is the main factor behind the relentless selling of FPI. India is the major emerging market where FPIs are sitting on big profits and the market is very liquid to absorb FPI selling, Vijayakumar said.
Himanshu Srivastava, Associate Director-Manager Research, Morningstar India said foreign investors are worried about the possibility of an aggressive rate hike by the US Fed going ahead.
The US Fed hiked rates twice this year to fight surging inflation caused by the disruption of the supply chain due to the war between Russia and Ukraine.
The geopolitical tension has increased because of the war, which has prompted investors to be risk-averse and stay away from emerging markets like India, which are perceived to be relatively riskier. Foreign investors would have found profit booking a better option in the current risk-averse environment, according to Srivastava.
Concerns over surging inflation as well as further rate hikes by the RBI and its impact on the economic growth loomed large on the domestic front.
Vijay Singhania, Chairman of TradeSmart, said that the impact of inflation on retail sales was spooked by the impact of inflation on the sharp and sudden drop in retail sales.
FPIs withdrew a net amount of Rs 6,133 crore from the debt market during the period under review, which was separate from equities.
High volatility will be part of the routine, with central banks struggling to control inflation, according to Singhania.
In May there were outflows from India, including Taiwan, South Korea, Indonesia and the Philippines.