Fears of an aggressive rate hike by the US Fed have continued to dent investor sentiments and foreign investors have pulled out around Rs 12,300 crore from the Indian equity market so far this month. Going forward, foreign inflows into Indian equities remain under pressure due to an impending rate hike by the US Fed, uncertainty around the Russia-Ukraine war, volatile crude oil prices, higher domestic inflation numbers and weak quarterly results, experts said. could.
Foreign portfolio investors (FPIs) remained net sellers for the six months to March 2022, pulling out a massive net worth of Rs 1.48 lakh crore from equities. These were largely due to anticipation of a rate hike by the US Federal Reserve and the deteriorating geopolitical environment following Russia’s invasion of Ukraine. After six months of selling, FPIs became net investors in the first week of April and infused Rs 7,707 crore in equities. After a brief respite, once again they posted net sales of over Rs 4,500 crore during the 11-13 April holiday and the sell-off continued for the next week as well.
Data from the depositories shows that in this month so far (April 1-22), there has been a net sell-off of Rs 12,286 crore to foreign investors. The sharp sell-off could be attributed to weak global cues after US Federal Reserve Chairman Jerome Powell indicated a 50 bps rate hike in May.
“Anxieties of an aggressive rate hike by the US Fed weighed on investor sentiment. Himanshu Srivastava, Associate Director- Manager Research, Morningstar India, said this could prompt investors to re-take a cautious approach to their investments in emerging markets like India. Its easy money is being pulled back as central bankers begin to withdraw excess liquidity amid riskier scenarios due to geopolitical tensions, said Manish Jelloka, Co-Head Product and Solutions, Sanctum Wealth.
He further added that rising interest rates in developed markets are usually accompanied by withdrawals from emerging markets. Apart from equities, FPIs pulled out a net Rs 1,282 crore from debt markets during the period under review.
According to Srivastava, at present there is nothing that can please foreign investors and persuade them to invest in Indian equity markets. “Apart from the impending rate hike by the US Fed, uncertainty around the Russia-Ukraine war, high domestic inflation numbers, volatile crude oil prices and weak quarterly results do not paint a very positive picture. In such a scenario, FPIs usually wait and see till more clarity comes,” he said.
He said in the given circumstances and rapidly changing global scenario, foreign inflows into Indian equities may remain under pressure, unless the underlying drivers and investment landscape change. Kotak Securities Head-Equity Research (Retail) Shrikant Chauhan said that in view of the adverse conditions in terms of higher crude oil prices, inflation, lower GDP, etc., FPI inflows are expected to remain volatile in the near future.
Apart from India, other emerging markets including Taiwan, South Korea and the Philippines saw outflows in the month of April so far.
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