Foreign investors have pulled over ₹6,400 crore from the Indian equities in the first five sessions of the month of May on the back of the RBI raising rates in a surprise move to curb inflation. Moreover, weak global cues like China's increasing lockdown situation, tightening US Fed policy, and rising crude oil prices due to the Ukraine-Russia crisis also kept the domestic markets volatile and the foreign investors jittery.
Foreign Portfolio Investors (FPIs) have remained net sellers for seven months from October 2021 to April 2022, withdrawing a massive amount of over ₹1.65 lakh crore from equities. This was largely on the back of anticipation of a rate hike by the US Federal Reserve and due to the deteriorating geopolitical environment following Russia's invasion of Ukraine.
FPI flows continue to remain negative in May, so far and they have sold around ₹6,417 crore during May 2-6, data with depositories showed. The trading in the market was closed on May 3 on account of Eid. In 2022, the FPIs have withdrawn a total of ₹1.33 lakh crore.
As per experts, headwinds like elevated crude prices, inflation, and tight monetary policy, will keep the FPIs' flows in India volatile in the near term.
"FPIs continued selling in the early days of May. Since markets have turned very weak globally FPIs may continue to sell perhaps with reduced volume. Even after the recent correction in the market, valuations are not cheap. Perhaps, if Nifty corrects another 5% from the current levels, FPIs are likely to turn buyers. With aggressive Fed tightening, lockdowns in China and the Ukraine war lingering the situation is not favorable for a sharp turnaround in markets," said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
RBI, in a surprise move on May 4, hiked the policy repo rate by 40 bps to 4.4 percent with immediate effect and cash reserve ratio by 50 bps effective May 21. This led to a huge crash in the markets which have been on a downward spiral ever since.
Meanwhile, the US Fed too raised rates by 50 bps on the same day, the biggest hike in two decades. Further, the Bank of England also lifted its key rate to the highest level since 2009. Additionally, concerns over COVID-19 in China also upset investors and kept them cautious.
Apart from equities, FPIs withdrew a net amount of ₹1,085 crore from the debt market during the period under review.
Going forward too, experts see market volatility remaining high as foreign investors are likely to continue to withdraw funds. Unless the war is called off, selling is expected to continue, they said.
Adding to the worry is the resurgence of coronavirus cases in China and in some other parts of the world. In such a scenario, the foreign investors would generally have a wait and watch approach till clarity emerges.
