FPI outflow shoots past the 1 lakh crore mark in 2022


Overseas portfolio investors have sold ₹48,261.65 million worth of domestic stocks so far this month

Overseas portfolio investors have sold ₹48,261.65 million worth of domestic stocks so far this month

Foreign investors have withdrawn £1,14,855.97 billion net from Indian markets year to date amid heightened geopolitical tensions and inflation concerns.

Foreign portfolio investors have sold ₹48,261.65 billion worth of domestic shares so far this month, bringing the annual balance this year to a massive ₹1,14,855.97 billion, according to custody data.

The exodus of foreign investors was largely due to inflationary pressures and tightening global macroeconomic conditions following the Russia-Ukraine war, experts said.

This is the sixth consecutive month that foreign institutional investors have divested their holdings in the Indian equity market on a net basis.

Foreign portfolio investors (FPIs) fear that India would be more affected by increases in commodity prices, particularly crude oil, as India is a major importer.

“While the war between Russia and Ukraine has limited the direct impact on the Indian economy, given our reduced reliance on imports from those countries, higher commodity inflation poses a key risk, both in terms of macro parameters such as balance of payments and inflation, and corporate earnings estimates due to higher input costs,” said Shibani Kurian, Senior EVP & Head-Equity Research, Kotak Mahindra Asset Management Company.

Ms Kurian added that India is a net importer of crude oil and it is estimated that every 10 percent rise in crude oil prices will affect the current account deficit by about 30 basis points, CPI inflation by about 40 basis points and GDP by about 20 basis points, everything else holding constant.

“However, this time around, unlike the past, there are a few downsides from a domestic perspective, which include high foreign exchange reserves, strong FDI flows and improving export growth,” Ms. Kurian noted.

According to depositary data, foreign investors withdrew £28,526.30 billion from Indian equities in January, £38,068.02 billion in February and £48,261.65 billion in March.

“Indian equity markets continue to be in a grind, influenced by and reacting to mounting news on the global front, particularly related to the geopolitical situation and Fed rhetoric. The two most important challenges and monitors for markets in the near term are persistent inflationary pressures and rising bond yields,” said Milind Muchhala, Executive Director, Julius Baer.

While inflationary pressures have been building in recent months, the geopolitical situation has worsened the situation as Ukraine and Russia are big players in the energy sector and in several commodities, and the prices of some of these commodities have skyrocketed since the beginning of the crisis, added Mr. Muchhala added.

“An ongoing geopolitical situation and elevated prices will gradually weigh on demand and profitability and may lead to a cut in growth and earnings estimates. Also, the recent rise in bond yields may impact flows and stock valuations,” Mr Muchhala said.

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