Foreign investors have withdrawn worth ₹1.15 lakh crore from the Indian markets in 2022 so far, which is a record high for any calendar year amid increased geopolitical tensions between Russia and Ukraine and its resulting inflationary concerns. Just this month, they have sold domestic equities worth ₹48,261.7 crore, remaining net sellers for the sixth consecutive month since October last year.
This was the highest ever since March 2020, when the Indian markets witnessed a massive sell-off due to COVID. In March 2020, outflows by foreign investors in Indian equities stood at ₹61,973 crore.
As per data, foreign investors pulled out ₹33,303 crore from Indian equities in January and ₹38,068.02 crore in February.
For FY22, they have withdrawn worth ₹1.40 lakh crore, which is again the highest ever outflow in a financial year to date. Before this, the highest overall net outflow by foreign investors was witnessed in 2008-09 at ₹45,811 crore followed by FPI outflows in FY19 at ₹38,930 crore and then FY20 at ₹27,528 crore.
This recent round of exodus of foreign investors is largely driven by inflationary pressures and worsening global conditions following the Russia-Ukraine war. According to experts, Foreign investors remain cautious that India will be impacted heavily by the surge in commodity price, especially crude oil. Further rise in commodity prices will not only impact macro numbers but also the corporate earnings estimates, they added.
Experts believe that it will take some time for the foreign investors to return back to India, at least till the uncertainty surrounding Russia and Ukraine are not over. Further, the corporate earnings also remain at risk as the rise in crude oil prices will adversely impact raw material costs across sectors and hence the companies may face margin pressure in the coming quarters.
However, even though the foreign investors seem to have lost confidence in Indian equities, the domestic investors and mutual funds have been consistently infusing funds in Indian equities countering some of the negative impacts due to the foreign outflows.
