Mon. May 20th, 2024

FPIs net sellers in equities on Re fall, US rate hike prospects

By Mahesh Limbani May 22, 2022

The outflux of foreign funds from domestic equity markets continued steadily, with FPIs having pulled out more than Rs 35,000 crore so far this month, according to depositories data.

The outflow by foreign portfolio investors (FPIs) comes amid concerns over chances of more aggressive policy rate hike by the US Federal Reserve and appreciation of the dollar.

FPI withdrawals also hit the rupee, which fell to a record low of 77.72 against the American currency during the week. As a result, net outflow by FPIs from equities so far in 2022 has reached Rs 1.63 lakh crore.

During the seven-month period till April, foreign investors remained net sellers, withdrawing a massive net amount of more than Rs 1.65 lakh crore from equities.

In the first week of April, following a six-month selling spree, FPIs turned net investors due to correction in the markets and invested Rs 7,707 crore in equities.

However, the reprieve was short-lived, as they turned net sellers again during the holiday-shortened April 11-13 week, and the sell-off persisted in the succeeding weeks as well.

Data from depositories showed that FPI flows continue to remain negative in May till date, as foreign investors have sold equities worth Rs 35,137 crore during May 2-20.


More fund outflows likely

The sustained fall in the value of the rupee against the US dollar has been a major catalyst of overseas investors pulling out of Indian equity markets in the last few weeks. If this trend continues, along with the expected interest rate hike by the US Federal Reserve, outflows by foreign portfolio investors are expected to only aggravate.

Going ahead, FPIs flow in India is to remain volatile in the near term, given the headwinds in terms of elevated crude prices, inflation, tight monetary policy, among others, said Shrikant Chouhan, head—equity research (retail), Kotak Securities.

“Since the mother market, US, is weak and dollar is strengthening, FPIs are likely to continue selling in the near term,” V K Vijayakumar, chief investment strategist, Geojit Financial Services, said.

“The major factor behind the relentless FPI selling is the appreciation of the dollar which has taken the dollar index above 103. Also, India is the major emerging market where FPIs are siting on big profits and the market is very liquid to absorb FPI selling,” Vijayakumar said.

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Himanshu Srivastava, associate director—manager research, Morningstar India, said that foreign investors continue to have concerns over the prospects of more aggressive rate hike by US Fed going ahead.

The US central bank has hiked rates twice this year to battle surging inflation caused by the disruption in supply chain due to the war between Russia and Ukraine.

“Because of the war, the geopolitical tension has also enhanced, which has prompted investors to turn risk-averse and stay away from emerging markets like India which are perceived to be relatively riskier. And in the current risk-averse environment, foreign investors would have found profit booking a better option,” Srivastava said.  WITH PTI

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