Overseas investors have so far taken a net Rs 1,14,855.97 crore from Indian markets in the current year amid heightened geopolitical tensions and inflation concerns.
Foreign portfolio investors have sold domestic shares worth Rs 48,261.65 crore this month so far this month, bringing the year’s total this year to a massive Rs 1,14,855.97 crore, according to custodians’ data.
The exodus of foreign investors was largely due to inflationary pressures and increasing global macroeconomic conditions after the Russia-Ukraine war, experts said.
This is the sixth consecutive month that foreign institutional investors have deposited their holdings on a net basis in the Indian stock market.
Foreign portfolio investors (FPIs) fear India will be more affected by commodity price increases, especially 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 lower reliance on imports from these countries, higher commodity inflation poses a significant risk, both in terms of macro parameters such as balance of payments and inflation and in terms of of corporate earnings estimates due to higher input costs,” said Shibani Kurian, Senior EVP & Head-Equity Research, Kotak Mahindra Asset Management Company.
Ms Kurian further added that India is a net importer of crude oil and it is estimated that every 10 percent increase in the price of crude oil affects the current account deficit by about 30 bps and CPI inflation by about 40 bps. bp and GDP by about 20 bp. everything else remains constant.
“Unlike in the past, however, there are a few offsets this time around from a domestic standpoint, including high forex reserves, strong FDI flows and an improvement in export growth,” she noted.
According to the depositories’ data, foreign investors took out Rs 28,526.30 crore from Indian equities in January, Rs 38,068.02 crore in February and Rs 48,261.65 crore in March.
“Indian equity markets remain in trouble, impacted by and reacting to increasing news flows on the global front, especially related to the geopolitical situation and the Fed’s rhetoric. The two main challenges and monitorables for the markets in the near term are continued inflationary pressures and rising bond yields,” said Milind Muchhala, executive director of Julius Baer.
While inflationary pressures have increased in recent months, the geopolitical situation has worsened, as Ukraine and Russia are major players in energy and various commodities, and the prices of some of them have risen since the start of the crisis, added Mr Muchhala.