Fpis withdraws ₹6.4 crore from the Indian stock market in the first week of May. What the experts have to say

Shrikant Chouhan, head of equity research (retail) at Kotak Securities, said that given headwinds in terms of high crude prices, inflation, tight monetary policy, among others, FPI flows into India are expected to remain short-term volatile.

This development comes at a time when foreign portfolio investors (FPIs) remained net sellers for seven months through April 2022, withdrawing a massive amount of more than $1.65 lakh crore of shares. This was largely due to the anticipation of a rate hike by the US Federal Reserve and the deteriorating geopolitical environment following the Russian invasion of Ukraine.

Following a six-month sell-off, FPIs became net investors in the first week of April amid the markets’ correction and invested $7,707 crore in shares. After a brief respite, they once again became net sellers during the holiday-shortened week of April 11-13, with the sell-off continuing in the following weeks as well.

It is important to point out that FPI flows continue to be negative in the month of May to date and have been sold around $6,417 crore between May 2 and May 6, data from depositories showed. Trading in the market was closed on May 3 because of Eid.

Vijay Singhania, Chairman of TradeSmart, said: “With central banks around the world hitting the panic button and raising interest rates, equity markets have also reciprocated the sentiment. Foreign investors continue to sell relentlessly.”

Himanshu Srivastava, Associate Director – Research Manager, Morningstar India, said the week turned out to be eventful. RBI in an off-cycle monetary policy review on May 4 raised the policy repo rate by 40 bps effective immediately and the cash reserve ratio by 50 bps from May 21. This drew a strong reaction from markets that have been in a downward spiral. as.

On the other hand, the US Federal Reserve also raised rates by 50 bps on the same day, the biggest hike in two decades. Among investors, he stoked fears that more big rate hikes are likely in the future, he added.

Also, the Bank of England raised its key rate to the highest level since 2009. Also, the market is expecting Britain to see 10 percent inflation. Additionally, concerns about COVID-19 in China could disrupt global supply chains and affect growth. This drives foreign investors back to their home country, Chouhan said.

Apart from the shares, the FPIs withdrew a net amount of $1,085 crores of the debt market during the period under review. Going forward as well, market volatility is expected to remain high as foreign investors may continue to withdraw funds. Unless the war is called off, the sale is expected to continue, TradeSmart’s Singhania said.

According to Srivastava of Morningstar, at the moment there is not much that can encourage foreign investors and encourage them to invest in the Indian stock markets.

“In addition to rate hikes from both the RBI and the US Federal Reserve, uncertainty surrounding the Russia-Ukraine war, high domestic inflation figures, volatility in crude oil prices and weak Quarterly results don’t paint an overwhelmingly positive picture. Recent rate hikes could also slow down the pace of the economy.” growth, which is also a concern,” she said.

Adding to the concern is the resurgence of coronavirus cases in China and other parts of the world. In such a scenario, FPIs typically become risk averse and take a wait-and-see approach until further clarity emerges, he added.

Given the given circumstances and the rapidly changing global landscape, foreign flows into Indian equities could continue to come under pressure, until there is a change in the underlying drivers and investment scenario, it added.

Notably, in addition to India, other emerging markets including Taiwan, South Korea and the Philippines have witnessed outflows in April year to date.

(With contributions from agencies)

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