Foreign investors pull out ₹31,430 crore in June so far

Aggressive rate hikes by the US Federal Reserve, coupled with high inflation and high stock valuations, kept foreign investors at bay from the Indian stock market as they pulled out 31,430 crore in this month so far.

This reached net outflows by Foreign Portfolio Investors (FPIs) from equities 1.98 lakh crore to date in 2022, data with deposits showed.

Going forward, FPI flows will remain volatile in emerging markets due to rising geopolitical risk, rising inflation and monetary policy tightening by central banks, among others, said Shrikant Chouhan, Head – Equity Research (Retail), Kotak Securities .

According to the data, foreign investors have a net amount of 31,430 crore of shares in the month of June (until 17).

Massive sales by FPIs also continued in June as they have been incessantly withdrawing money from Indian stocks since October 2021.

Shrikant attributed the latest sales to rising inflation, tight monetary policies from global central banks and increased crude oil prices.

Global investors are reacting to the heightened risks of a global recession as the US Federal Reserve was forced to raise interest rates by 75 basis points amid continued high inflation. In addition, it also indicated that it was continuing its aggressive stance to curb stubbornly high inflation.

“Strengthening the dollar and rising bond yields in the US are the main triggers for the sale of FPIs. As the Fed and other central banks such as the Bank of England and the Swiss central bank have raised interest rates, there have been synchronized rate hikes worldwide, with rising yields. is shifting from equities to bonds,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Given this scenario of uncertainty in which bonds offer capital security and better returns, it is likely that there will be a capital flight to safety. US markets saw the worst weekly decline since March 2020, the peak of the pandemic, said Vijay Singhania, chairman of TradeSmart.

Also on the domestic side, inflation has been a cause for concern, and to tame that, the RBI has also raised rates.

“The Fed’s aggressive rate hike would most likely prompt the RBI to raise rates further over the next two or three quarters, directly impacting GDP growth and market movements,” said Himanshu Srivastava, Associate Director. – Research Manager, Morningstar India, said.

In addition, the geopolitical tension resulting from the war between Russia and Ukraine shows no signs of resolving. Crude oil also remains at a high level. These factors have caused foreign investors to become risk averse, which is why they have steered clear of investing in Indian equities, he added.

In addition to equities, FPIs took a net amount of approximately 2,503 crore from the debt market during the reporting period. Since February, they have been continuously withdrawing money from the debt side.

From a risk and reward perspective, and with interest rates rising in the US, Indian debt may not be an attractive investment option for foreign investors, Srivastava said.

In addition to India, FPIs have sold extensively in other emerging markets such as Taiwan, South Korea, the Philippines and Thailand. PTI SP HVA

This story was published from a news agency feed with no text changes. Only the headline has been changed.

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