Foreign portfolio investors (FPIs) pulled out a whopping Rs 28,243 crore from Indian equities in January as US Fed signalled interest rate hike.
As per the depositories data, FPIs took out Rs 28,243 crore from equities between January 3 and January 28.
During the same period, they pumped in Rs 2,210 crore into debt segment and Rs 1,696 crore into hybrid instruments.
The total net outflow stood at Rs 24,337 crore.
With the latest pull out of funds from Indian markets, FPIs have become net sellers for fourth consecutive month.
"With US Fed signalling that it will start hiking interest rates soon and shrink its bond holdings, FPIs went on a selling spree in the Indian equity markets," said Himanshu Srivastava, Associate Director - Manager Research, Morningstar India.
This is indicative of an end to the ultra-loose monetary policy regime.
"FPIs have been booking profits in IT where they have been sitting on big profits after the huge appreciation in the last two years," V K Vijayakumar, chief investment strategist at Geojit Financial Services, noted.
FPI selling has depressed the stock prices of financials, particularly that of leading banks, he added.
Besides, the bond yields globally have surged in recent times in expectation of a hike in interest rates by the US Fed which has made investors risk-averse prompting them to cut exposure in riskier assets and move towards safe havens such as gold, Mr Srivastava said.
The investment in Indian debt market could be a result of FPIs parking their investments from a short-term perspective given their cautious stance towards Indian equities.
Other emerging markets like South Korea, Taiwan and Philippines witnessed negative flows of $2.77 billion, $2.5 billion and $56 million, respectively, while Thailand and Indonesia witnessed inflows to the tune of $442 million and $418 million, respectively, said Shrikant Chouhan, Head - Equity Research (Retail), Kotak Securities.
The central bank's determination to curb high inflation and Fed's commencement of asset tapering after hiking borrowing costs will likely keep equity markets volatile, Mr Chouhan said.
Also, rising crude oil prices and inflation are expected to keep FPIs flows in emerging markets volatile. Additionally, investors' focus will on the upcoming Union budget and state elections in India, he added.