NSDL figures show that from June 1 to June 3, FPI extracted 2,288 crore from the equity market. They were net buyers in the debt market 857 crores.
FPI outflows remained flat in May 39,993 crore, and total sales 17,144 crore in April this year.
So far in 2022 FPIs have been removed 1,69,443 crore from the equity market.
On Thursday, the BSE Sensex was down 48.88 points or 0.09% at 55,769.23. The Nifty 50 closed at 16,584.30, down 43.70 points or 0.26%.
Vinod Nair, Head of Research, Geojit Financial Services, said, “The late sell-off indicates a lack of confidence in the domestic market driven by concerns over central bank policy. In the global market, investors were waiting for the release. US job data “
Why are FPIs Net Sellers?
Manoj Purohit, Partner & Leader – Financial Services Tax, BDO India points out that the market has witnessed massive cash outflow trend in the recent past, especially in the equity segment, mainly due to foreign portfolio investors (FPIs). continuously reduce. Last 8-9 months. The major motivating factors for foreign institutions to make such withdrawals from emerging markets are due to some global and domestic factors. Apart from India, other emerging markets including Taiwan, Indonesia, South Korea and the Philippines are also facing heat, resulting in substantial selling.
On the global front, according to Purohit, the major contributors are rising interest rates. Additionally, there are concerns about the ongoing military conflict between Russia and Ukraine affecting crude oil prices. Globally, rate hikes by the US Federal Reserve, tightening of monetary policy by global central banks and a hike in the foreign exchange dollar rate have prompted foreign investors to sell equities from sensitive markets.
Meanwhile, on the domestic side, Purohit points out that the rate hike by RBI last month has added fuel to the fire. Even the financial results of some large domestic corporates did not live up to the expectations. There are concerns that these factors could be a hindrance to the economy’s recovery path in the later phase of the pandemic and curb household spending. Taking a cue from this in its update of Global Macro Outlook 2022-23, even Moody’s Investors Service cut India’s economic growth forecast for 2022 to 8.8% from 9.1%.
what is next?
The next important thing to watch is RBI’s monetary policy this month. In May, the RBI raised the policy repo rate by 40 basis points to 4.4% to tackle rising inflation, which remained above the central bank’s comfort zone for the fourth consecutive month.
Umesh Revankar, Vice Chairman and MD, Shriram Transport Finance, said, “We expect the RBI to hike interest rates by anywhere between 25-40 bps in its June policy meeting. Undoubtedly, inflation in India has picked up, and this is to a large extent. This is attributed to. Global geopolitical environment. GDP growth of 8.7% in FY22 on a low basis, still shows that domestic demand remains weak and purchasing power is eroding with higher inflation, regulatory rates RBI is taking measures to control inflation by infusing excess liquidity into the system, meanwhile, the government by reducing taxes on petroleum products and restricting exports of essential commodities also managing it.”
Nair said, “RBI is expected to hike rates by 25 bps to 35 bps and Fed by 50 bps, but outlook and changes in economic growth and inflation will determine the market trend. If central banks decide on a tighter policy The market mood may turn bearish.”
Talking about the market’s expectations next week, Yash Shah, Head of Equity Research, Samco Securities said, inflation being a key factor, will be the central point of all discussions in the coming week as inflation data for China and the United States is released. will be done. Another important event for the domestic markets will be the outcome of the RBI MPC meeting. Market participants tried to read along the lines of RBI’s monetary policy and given the worsening inflationary fears, the road is expected to hike repo rate by 35-50 bps this time. Considering these major developments, investors are advised to use knee-jerk reaction to cherry-pick quality stocks in currently resilient sectors and invest in a staggered manner.
Giving a outlook on FPI’s investments in equity market, Purohit said that the volatility trend is temporary and may ease in the coming months, owing to the prediction of above average monsoon, which will boost industry and agriculture growth. Positive credit growth, substantial increase in long-term investment plans by large industry players, and a significant budget allocation on capital expenditure by the government will act as catalysts to bring back the momentum in the investment cycle.
Also, the recent developments in the relaxation of regulatory and tax laws have once again reiterated the government’s determination to provide more opportunities for foreign investment. Purohit said this will certainly have a multiplier effect in contributing to India’s growth story and dream of becoming a US$ 5 trillion economy by 2025.