Indian Equity Markets: FPIs Dump Indian Stocks Worth Over Rs 35,000 Crore In May So Far

New Delhi: The exodus of foreign money from Indian stock markets continues unabated with FPIs extracting more than Rs 35,000 crore so far this month due to concerns about the prospects of a more aggressive rate hike by the of the US Federal Reserve and the appreciation of the dollar.

With this, the net outflow of foreign portfolio investors (FPIs) from the shares reached Rs 1.63 lakh crore so far in 2022.

Looking ahead, the flow of FPIs into India will remain volatile in the short term, given headwinds in terms of high crude prices, inflation, tight monetary policy, among others, said Shrikant Chouhan, Head of Income Research Variable (Retail), Kotak Securities.

“As the parent market, the US, is weak and the dollar is strengthening, FPIs are likely to continue selling in the near term,” said VK Vijayakumar, investment strategist at Cheif.

Overseas investors remained net sellers for seven months to April 2022, withdrawing a massive net amount of more than Rs 1.65 lakh crore worth of shares.

After a six-month sell-off, FPIs became net investors in the first week of April due to the correction in the markets and invested Rs 7,707 crore in stocks.

However, after a brief respite, they once again became net sellers during the holiday-shortened week of April 11-13, and the sell-off continued in the following weeks as well.

FPI flows remain negative May YTD and have shed Rs 35,137 crore worth of shares between May 2 and May 20, depositories data showed.

“The main factor behind the relentless selling of FPIs is the appreciation of the dollar which has pushed the dollar index above 103. Also, India is the main emerging market where FPIs make big profits and the market is very liquid to absorb FPI sales, Vijayakumar said.

Himanshu Srivastava, Associate Director – Research Manager, Morningstar India, said foreign investors remain concerned about the prospects of more aggressive rate hikes by the US Federal Reserve in the future.

The US Federal Reserve raised rates twice this year to combat rising inflation caused by supply chain disruption due to the Russia-Ukraine war.

“Due to the war, geopolitical tension has also increased, leading investors to become risk averse and stay away from emerging markets like India, which are perceived as relatively riskier. And in the current environment of aversion to risk, foreign investors would prefer I have found that the profit reserve is a better option,” Srivastava said.

On the domestic front too, concerns about rising inflation as well as further rate hikes by the RBI and their impact on economic growth were significant.

“What scared investors was the impact of inflation on the sudden sharp drop in retail sales,” said Vijay Singhania, president of TradeSmart.

Apart from the shares, the FPIs withdrew a net amount of Rs 6,133 crore from the debt market during the period under review.

With central banks struggling to control inflation, high volatility will remain part of the routine, Singhania said.

Apart from India, other emerging markets including Taiwan, South Korea, Indonesia and the Philippines have witnessed an outflow in May to date.

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