Stock market sees worst sell-off of FPIs in FY22 at ₹1.4 lakh Cr.


The figure compares to inflows of a whopping ₹2.7 lakh crore in the previous fiscal year

The figure compares to inflows of a whopping ₹2.7 lakh crore in the previous fiscal year

Overseas portfolio investors dumped £1.4 billion worth of Indian stocks in fiscal 2021-22, mainly due to a sharp rise in coronavirus cases, concerns about the risk of economic recovery and those sparked by the war between Russia and Ukraine global turmoil. The figure compares to inflows of a whopping ₹2.7 lakh crore in the previous fiscal year

The year that ended in March 2022 was the worst ever exodus of Foreign Portfolio Investors (FPI) from the domestic stock market. They withdrew £88m in FY2019, £14,171bn in FY2016 and £47,706m in FY2009, data with custodians showed.

In addition, experts said flows from FPIs are likely to remain volatile in the near term amid headwinds in the form of elevated crude oil prices and inflation.

FPIs have made net withdrawals in nine of the twelve months of the fiscal year just ended. You have been selling domestic shares since October 2021.

Several factors led to FPI outflows in fiscal 2022, the year that saw a sharp rise in coronavirus cases from April to May 2021, the peak of the second wave of the COVID-19 pandemic, Himanshu Srivastava said. Associate Director – Manager Research, Morningstar India.

“The sudden and sharp rise of the coronavirus pandemic in the country and its ferocity surprised foreign investors who until then were comfortably sailing in anticipation of a speedy economic recovery. Also, the daily number of COVID-19 cases surpassed the 4-lakh mark in May and concerns about the risks to economic recovery have been growing with the lockdown imposed in several states to curb the spread of the virus more pronounced. These factors have scared off foreign investors,” he added.

Overall, the FPIs started the 2021-22 financial year on a negative note, selling ₹12,613 crore of shares in April-May 2021. However, the scenario started to improve in mid-May when the daily case count started a downward trend.

Foreign investors came back in June making a net investment of ₹17,215 crore due to the steadily falling coronavirus cases in the country. Most states began easing lockdown, which boded well for a pick-up in business activity.

These factors aside, good quarterly results and a positive earnings growth outlook have reignited FPIs’ interest in Indian equities over the longer term. Also, the surge in the vaccination campaign boosted investor sentiment and fueled expectations that the second wave would only have a limited impact on the country’s economy.

However, from a bullish mood in June, FPIs turned net sellers in July, withdrawing ₹11,308 crore in the month on the US Federal Reserve’s hawkish statement that it could hike interest rates much sooner than anticipated. In addition, rising valuations, a surge in oil prices and the strength of the US dollar made them wary of short-term risks.

They returned to equities again in August and the positive momentum continued into September on the back of an improving macro environment and a positive outlook. This was also driven by the expectation that the economy would improve and soon get back on track as the pace of vaccination picks up and a large proportion of the population becomes vaccinated.

However, the pace of FPI flows failed to sustain as the trend reversed in October and the net drawdown continued through March 2022 due to uncertainties at both global and domestic levels.

The spread of the highly transmissible Omicron variant of the coronavirus in India and other parts of the world has been a cause for concern. Also, expectations of rate hikes by the US Federal Reserve and a deteriorating geopolitical environment amid the Russia-Ukraine war have weighed on FPI flow, Mr Srivastava added.

According to Nikhil Kamath, co-founder of True Beacon and Zerodha, India looks relatively expensive and FPIs could refocus on China and other opportunities by reducing exposure to India.

Atanuu Agarrwal, co-founder of UpsideAI, said the main reason for the outflow remains the changing interest rate environment and the Fed’s signal to end stimulus.

“There are several other reasons – India is expensive, crude oil has skyrocketed, INR is weak, the conflict between Russia and Ukraine leads to a flight to safety. But other things being equal, if the Fed had signaled a delay in raising rates, we might have never seen a sell-off of this magnitude,” he added.

On the other hand, foreign investors made a net investment of ₹1.628 billion in the debt markets in 2021-22. This comes after a net outflow of ₹50,443 crore in the prior fiscal year.

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