Foreign investors have pulled over Rs 6,400 crore from the Indian equity market in the first four trading sessions of the ongoing month when the Reserve Bank of India (RBI) and US Federal Reserve raised interest rates.
Given the headwinds in terms of elevated crude prices, inflation, tight monetary policy among others, FPIs' flows in India are expected to remain volatile in the near term, Shrikant Chouhan, Head - Equity Research (Retail), Kotak Securities, said.
Foreign Portfolio Investors (FPIs) remained net sellers for seven months to April 2022, withdrawing a massive amount of over Rs 1.65 lakh crore from equities. This was largely on the back of anticipation of a rate hike by the US Federal Reserve and due to the deteriorating geopolitical environment following Russia's invasion of Ukraine.
After six months of selling spree, FPIs turned into net investors in the first week of April amid correction in the markets and invested Rs 7,707 crore in equities. After a short breather, once again they turned net sellers during the holiday-shortened April 11-13 week, and the sell-off continued in the succeeding weeks too.
FPI flows continue to remain negative in the month of May till date and they have sold around Rs 6,417 crore during May 2-6, data with depositories showed. The trading in market was closed on May 3 on account of Eid.
"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," Vijay Singhania, Chairman, TradeSmart, said.
On the other hand, the US Fed too raised rates by 50 bps on the same day, the biggest hike in two decades. Among investors, it fanned fears that going ahead, further large rate hikes are likely to come, he added.
Further, the Bank of England lifted its key rate to the highest level since 2009. Also, the market expects that Britain could see inflation at 10 per cent. Additionally, concerns over COVID-19 in China could upset global supply chains and hit growth. This makes foreign investors move back to its home country, Chouhan said.
Apart from equities, FPIs withdrew a net amount of Rs 1,085 crore from the debt market during the period under review.
Going forward too, market volatility is expected to remain high as foreign investors may continue to withdraw funds. Unless the war is called off, selling is expected to continue, TradeSmart's Singhania said.
Apart from India, other emerging markets, including Taiwan, South Korea and the Philippines witnessed outflows in the month of April to date.