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Continuing the selling spree for the last 8 months, foreign portfolio investors (FPIs) withdrew nearly ₹45,276 crore from domestic markets in May 2022. The sell-off in May is also the second-highest monthly outflow recorded in the domestic market since 1993 after March 2020 when FPIs sold shares worth ₹62,000 crore on the back of the COVID-19 pandemic-led lockdown.

The latest sell-off by FPIs was mainly triggered by the Russia-Ukraine crisis and the rising commodity prices. Further worries surrounding US Federal Reserve tightening its monetary policy more aggressively than anticipated, surprise rate hike by the RBI, lockdowns in China as COVID re-emerged and rising inflation also kept the foreign investors on the sidelines.

So far in 2022, the outflows figure by foreign investors is over ₹1.8 lakh crore versus ₹54,542 crore in 2021. However, domestic investors made purchases of over ₹7,000 crore in 2022 YTD versus ₹80,310 crore in 2021.

It is important to note that five of the 10 worst foreign outflows months came in the last eight months. Foreign investors have been on a selling spree since October, pulling out a staggering ₹2 lakh crore ($27 billion) during this period.

The outflows since October have also overtaken the previous record sell-off by FPIs when ₹1.16 lakh crore, or $15 billion at the current exchange rate, which was pulled out during the global financial crisis between January 2008 and March 2009.

This has also led to higher volatility amid the Indian markets, experts note, adding that outflows from FPIs are expected to continue in the near term. Investors are also cautious due to the fear that high inflation could hamper corporate profits and impact consumer spending, they noted.

The sharp selling from foreign investors led to <a target="_blank" href="https://mintgenie.livemint.com/news/markets/markets-in-may-sensex-nifty-end-lower-auto-index-steal-the-show-151654063978012">a 3 percent decline in benchmark indices </a>Nifty and Sensex during the month, making it the worst performance from the indices in May since 2012.

In a recent note, Goldman Sachs anticipated that FPI flows into India may remain weak in 2022. It forecasts $5 billion in foreign portfolio investment into India in 2022, down from its previous prediction of $30 billion, with risks skewed to the downside.

Going ahead, FPI inflow into India is likely to remain volatile, given the headwinds in terms of elevated crude prices, inflation and tight monetary policy, said Shrikant Chouhan, Head – Equity Research (Retail), Kotak Securities.

“At higher levels, FPIs may continue to sell. If global markets are stable, FPI selling will be easily absorbed by DII plus retail buying," noted VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Brokerage firm Phillips Capital, however, is hopeful that the trend of foreign selling may wane in the coming months as slowing global and US growth forces the US Federal Reserve to ease its monetary policy tightening spree.

“We also expect FII outflows from India to taper from hereon and continue to foresee a likelihood of less hawkish monetary policies across the globe (including India) than being anticipated currently,” Phillips Capital said in a note.

Apart from India, other emerging markets, including Taiwan, South Korea, Indonesia and the Philippines, too have witnessed outflows in the month of May.

May sees second-highest FPI outflows since 1993 after March 2020  

The sell-off in May is also the second-highest monthly outflow recorded in the domestic market since 1993 after March 2020 when FPIs sold shares worth ₹62,000 crore on the back of the COVID-19 pandemic-led lockdown.

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