Foreign portfolio investors dump Indian equities worth over Rs 35,000 crore in May so far on US Fed rate hike & dollar appreciation

Exodus of foreign money from the Indian equity markets continues unabated with FPIs pulling out over Rs 35,000 crore so far this month on concerns over the prospects of more aggressive rate hike by US Fed and appreciation of the dollar.

With this, net outflow by Foreign Portfolio Investors (FPIs) from equities reached Rs 1.63 lakh crore so far in 2022.

Going ahead, FPIs flow in India is to remain volatile in the near term, given the headwinds in terms of elevated crude prices, inflation, tight monetary policy, among others, said Shrikant Chouhan, Head - Equity Research (Retail), Kotak Securities.

"Since the mother market, US, is weak and dollar is strengthening, FPIs are likely to continue selling in the near term," V K Vijayakumar, Cheif Investment Strategist at Geojit Financial Services, said.

Foreign investors remained net sellers for seven months to April 2022, withdrawing a massive net amount of over Rs 1.65 lakh crore from equities.

After six months of selling spree, FPIs turned net investors in the first week of April due to correction in the markets and invested Rs 7,707 crore in equities.

However, after a short breather, once again they turned net sellers during the holiday-shortened April 11-13 week, and the sell-off continued in the succeeding weeks as well.

FPI flows continue to remain negative in the month of May till date and have dumped equities worth Rs 35,137 crore during May 2-20, data with depositories showed.

"The major factor behind the relentless FPI selling is the appreciation of the dollar which has taken the dollar index above 103. Also, India is the major emerging market where FPIs are siting on big profits and the market is very liquid to absorb FPI selling," Vijayakumar said.

Himanshu Srivastava, Associate Director - Manager Research, Morningstar India, said that foreign investors continue to have concerns over the prospects of more aggressive rate hike by US Fed going ahead.

US Fed has hiked rates twice this year to battle surging inflation caused by the disruption in supply chain due to the war between Russia and Ukraine.

"Because of the war, the geopolitical tension has also enhanced, which has prompted investors to turn risk-averse and stay away from emerging markets like India which are perceived to be relatively riskier. And in the current risk-averse environment, foreign investors would have found profit booking a better option," Srivastava said.

On the domestic front too, concerns over surging inflation as well as further rate hikes by the RBI and its impact on the economic growth loomed large.

"What spooked investors was the impact of inflation on the sharp and sudden drop in retail sales," Vijay Singhania, Chairman, TradeSmart, said.

Apart from equities, FPIs withdrew a net amount of Rs 6,133 crore from the debt market during the period under review.

With central banks struggling to control inflation, high volatility will continue to be part of the routine, Singhania said.

Apart from India, other emerging markets, including Taiwan, South Korea, Indonesia and the Philippines, witnessed outflow in May till date.