Amidst rising bond yields in the US, an appreciating dollar and the prospect of more aggressive rate hikes by the Federal Reserve, foreign investors have sold Indian stocks worth over Rs 39,000 crore this month.
This means that foreign portfolio investors (FPIs) have outflowed Rs 1.66 lakh crore from equity so far in 2022. According to Shrikant Chouhan, Head – Equity Research (Retail), Kotak Securities, FPI inflow into India is likely to remain volatile in the future, owing to elevated crude prices, inflation, and tight monetary policy.
Recent signs suggest that FPIs are exhausting their selling. Domestic institutional investors (DIIs) and retail buyers are emerging as strong counterweights to FPI selling. At higher levels, it is possible for FPIs to continue to sell.
If globally markets are stable, FPI selling will be easily absorbed by DII plus retail buying,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services. Foreign investors have remained net sellers for the seven months to April 2022, withdrawing a massive Rs 1.65 lakh crore from equities. FPIs turned net investors in the first week of April due to a correction in the markets and invested Rs 7,707 crore in equities. However, after a short breather, they once again turned net sellers in the subsequent weeks.
According to data with depositories, foreign institutional investors dumped equities worth Rs 39,137 crore between May 2 and 27. There are still two trading sessions left in the month, as well. In addition to high valuations in India, rising bond yields in the US, an appreciating dollar, and concerns about a recession in the US resulting from aggressive tightening, Vijaykumar said, are some of the reasons for FPI withdrawal.
A continuation of the war between Russia and Ukraine, as well as these factors, could further threaten global economic growth. He also pointed out that concerns about rising inflation as well as further RBI rate hikes and their impact on economic growth loomed large on the domestic front. FPIs continued to sell in the month. However, the week ended on a slightly positive note.
In part, the reason is that global markets responded positively to negative US GDP numbers and rose. Vijay Singhania, Chairman of TradeSmart, said the rub-off was evident in Indian markets, especially on the last two days of the week. During the period under review, foreign institutional investors also withdrew Rs 6,000 crore from the debt market, in addition to equities.
Besides India, other emerging markets, including Taiwan, South Korea, Indonesia and the Philippines have also seen outflows in the month of May so far.