Foreign investors continued their sell-off for the sixth straight month, taking a massive Rs 41,000 crore from the stock market in March ahead of rate hikes by the US Federal Reserve and the deteriorating geopolitical environment amid the Russia-Ukraine war.
Furthermore, flows of foreign portfolio investors (FPIs) are expected to remain volatile in the near term given the headwinds in terms of elevated crude prices and inflation, experts say.
According to data available from the custodians, FPIs were net sellers last month at a cost of Rs 41,123 crore in the stock market.
This was much higher than net withdrawals of Rs 35,592 crore in February and Rs 33,303 crore in January.
Foreign investors have been withdrawing money from equities for the past six months, raising a net Rs 1.48 lakh crore between October 2021 and March 2022.
Commenting on the latest outflows, Atanuu Agarrwal, co-founder of UpsideAI, said that “the main reason remains the changing interest rate environment and the Fed’s signal to end stimulus. There are multiple other reasons – India is expensive, crude oil has risen “The Indian rupee is weak, the conflict between Russia and Ukraine is leading to a flight to safety. But all things considered, if the Fed had indicated a delay in raising interest rates, we might not have seen a sale of this magnitude.” , he added.
Making similar arguments, Himanshu Srivastava, Associate Director – Manager Research, Morningstar India, said the outflow can be attributed to the anticipation of the US Fed rate hike and the deteriorating geopolitical environment with Russia and Ukraine at war.
Nikhil Kamath, co-founder of True Beacon and Zerodha, said India looks relatively expensive, and that FPIs can rebalance China and other opportunities by reducing their exposure to India.
Cyclically, this is the first time we’ve noticed a long-term inverse correlation between FPI flows and Nifty, he added.
Apart from equities, the debt market saw a net outflow of Rs 5,632 crore in March.
In addition to India, other emerging markets such as Taiwan, South Korea and the Philippines also witnessed an outflow of FPI in March.
Recently, the US Fed raised its key rate by a quarter of a percentage point for the first time since 2018, finally ending its ultra-easy pandemic-era monetary policy and signaling more rate hikes this year.