New Delhi: Price foreign portfolio investors ,FPIAccording to a report by Morningstar, holdings in domestic equities fell 14 percent to $523 billion in the three months ended June 2022. This was the third consecutive quarter of decline in the value of FPI investments in Indian equities.
Foreign investors were cautious from the start of the year following the impact of worrying trends in both global and domestic markets and this intensified as the year progressed.
“During the quarter ended June 2022, the value of FPI investments in Indian equities declined by 14 per cent to $523 billion from $612 billion recorded in the previous quarter,” the report said.
As of June 2021, the value of FPI investments in Indian equities was $592 billion.
The contribution of FPIs to the Indian equity market capitalization also declined to 16.9 per cent during the quarter under review, from 17.8 per cent in the March quarter.
Offshore mutual funds are a significant component of the total foreign portfolio investmentApart from other large FPIs, such as offshore insurance companies, hedge funds and sovereign wealth funds.
During the quarter ended June 2022, FPIs sold net assets of $13.85 billion. However, this was lower than the $14.59 billion net outflows seen during the quarter ended March.
Continuation with the US Federal Reserve’s aggressive monetary policy stance weighed on foreign investor sentiment since the start of the quarter. In its report, Morningstar said bond yields also rose globally on expectations of a prolonged interest rate hike by the Fed, putting investors at risk.
Moreover, volatile crude oil, rising commodity prices and no positive developments in the Russia-Ukraine conflict have added to investor woes.
The Fed has raised interest rates by 150 basis points so far in 2022 and is expected to continue its aggressive rate-hike stance for the remaining months of the current year.
Apart from global factors, the outlook on the domestic front was also not encouraging. Rising inflation remains a matter of concern and to control it, the Reserve Bank of India is also increasing the rates.
“The Fed’s aggressive rate hike will prompt the RBI to hike rates further in the next two or three quarters, which will have a direct bearing on the country’s GDP growth and market movement. Since May, the RBI has extended the buyback option, or repo. has increased the rate by 140 basis points,” the report said.
These factors have turned foreign investors away from risk and hence they stayed away from investing in emerging markets like India.
Another important factor contributing to the outflow from the domestic stock exchanges during the quarter is their valuation.
However, the outlook improved in July and FPIs became net buyers in Indian equities after nine consecutive months of net outflows.
“This reversal in net outflows cannot be construed as a change in trend or that FPIs have made a complete comeback and it may take some time for clarity to emerge. Inflows are also massive. Driven by short-term trends, we have yet to see long-term money coming into the Indian markets, which is sticky,” the report said.
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