Taking a cautious approach, foreign investors have withdrawn over Rs 4,500 crore from Indian Equity Market Last week amid fears of aggressive rate hikes by the US Federal Reserve. This comes after foreign portfolio investors (FPIs) netted Rs 7,707 crore during April 1-8, as a correction in the markets provided a good buying opportunity, data from the depositories showed.
Earlier, FPIs remained net sellers for the six months to March 2022, pulling out a massive net amount of Rs 1.48 lakh crore from equities. These were largely due to anticipation of a rate hike by the US Federal Reserve and the deteriorating geopolitical environment following Russia’s invasion of Ukraine.
“We are expecting FPIs to come back to India in a big way when the Ukraine crisis subsides as our valuations have become highly competitive,” said Sonam Srivastava, founder, Wright Research, a SEBI-registered investment advisory. According to depository data, FPIs have withdrawn a net amount of Rs 4,518 crore from Indian equities during the reduced holiday on April 11-13.
Markets remained closed on April 14 and April 15, respectively, on account of Ambedkar Jayanti and Good Friday. During the holiday-trimmed week, FPIs turned net sellers on fears of an aggressive rate hike by the US Fed, which came back to haunt the markets. Himanshu Srivastava, Associate Director- Manager Research, Morningstar India, said this could prompt investors to re-take a cautious approach to their investments in emerging markets like India.
Apart from equities, FPIs pulled out a net Rs 415 crore from debt markets during the period under review, after infusing a net amount of Rs 1,403 crore in the previous week. “The sell-off by FPIs was in line with the global trajectory in equity markets due to concerns about Fed hiking rates. Moreover, the inflation data for India that came out last week was higher than expected, further weakening the sentiment. Srivastava of Wright Research said, RBI is also seen changing its stance towards tightening, which may put pressure on equity markets.
Jama Wealth co-founder Manoj Trivedi said the ongoing selloff is not due to India-specific factors. Given various uncertainties such as the ongoing war due to a possible depreciation of the rupee, a rise in domestic (US) interest rates and an anticipated lack of returns in dollar terms, it stems more from a desire to move to safe havens. Morningstar India’s Srivastava said given the rapidly changing global scenario, foreign inflows into Indian equities could change either way, depending on how the underlying scenario changes.
Last month the US Fed raised rates by a quarter percentage point for the first time since 2018, thus finally ending its over-easing pandemic-era monetary policy and signaling more rate hikes this year. The war between Russia and Ukraine is still going on. At the same time, there is uncertainty about the next step of the US Fed.
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