The net foreign fund outflow from Indian markets in 2022 has crossed the ₹2-lakh-crore mark, the biggest annual figure ever and more than double the previous high of ₹80,917 crore recorded in 2018. Of the total, over 90%, or about ₹1.9 lakh crore, was because of selling by foreign portfolio investors (FPIs) in the stock market, TOI reported.
Galloping inflation, a rising current account deficit, a weakening currency and the decision by the US Fed to raise rates in the world’s largest economy at a very fast clip have compelled foreign fund managers to take money off risky emerging-market assets, including those from India, analysts and brokers said.
On Wednesday, the rupee closed 7 paise down at a record low of 78.07 against the dollar.
June is the ninth consecutive month that FPIs have been net sellers in India, taking the total to nearly ₹2.5 lakh crore during this period. So far this month, in just 15 days, FPIs have net sold stocks worth nearly ₹25,000 crore, official data showed. On Wednesday too, FPIs were net sellers in the market to the tune of ₹3,531 crore. This data will be incorporated into the figures that will be reported on Thursday.
According to a leading debt fund manager, the FPI outflow could continue for a few more months, at least till the time, there is clarity about how far the US Fed will move to tighten liquidity in the US.
To tame inflation, US Fed chairman Jerome Powell has indicated that rates should be raised very quickly and aggressively. The Fed has also said that it would reduce its balance sheet size at a rate of $95 billion per month. Since the COVID pandemic started in early 2020, the US central bank has been buying bonds from the market and in turn, infusing funds into the system.
During the pandemic, the Fed purchased $3.3 trillion in Treasuries and $1.3 trillion in mortgage-backed securities in order to keep borrowing costs low.
Given that retail inflation in the US is at a 41-year high, the Fed, along with raising rates, has also stopped buying bonds. In addition, starting this month, it has started selling bonds it’s already holding.
