Continuing their huge promoting spree for the ninth consecutive month, overseas buyers dumped Indian shares value Rs 50,203 crore in June — the best internet outflow in over two years — amid aggressive charge hike by the US Federal Reserve, elevated inflation and comparatively increased valuation of home fairness. Foreign portfolio buyers (FPIs) have now pulled out round Rs 2.2 lakh crore from home equities within the first six months of 2022 — the highest-ever internet withdrawal by them. Before that, FPIs withdraw Rs 52,987 crore in the complete 2008, knowledge with depositories confirmed.
The huge capital outflow has additionally contributed to the depreciation within the rupee, which breached the 79-mark in opposition to the US greenback for the primary time final week. Analysts warn that FPI flows are more likely to stay risky within the close to time period.
“Going ahead, we believe inflation would be the key driver to monitor to decide the trend, coupled with narrowing yield gap between bonds and equities…,” mentioned Shrikant Chouhan, Head – Equity Research (Retail), Kotak Securities. According to the information, FPIs withdraw a internet sum of Rs 50,203 crore from equities in June. This was the best internet outflow since March 2020, after they had pulled out Rs 61,973 crore.
FPIs have been deserting Indian equities since October 2021. “Aggressive rate hike by US Fed, high inflation as well as relatively higher valuations of Indian stocks continued to keep foreign investors at bay through the month of June,” mentioned Himanshu Srivastava, Associate Director – Manager Research, Morningstar India.
According to him, the broader sentiment remained adverse in direction of India, which prompted overseas buyers to hold ahead their cautious stance on home equities. in comparison with different rising markets, India is among the many worst hit with respect to internet outflows. “The relentless FPI selling has to be seen in the context of steadily rising dollar and bond yields in the US. FPIs are selling more in countries with rising current account deficits (CAD) like India because the currencies of such countries are vulnerable to further depreciation,” mentioned VK Vijayakumar, Chief Investment Strategy at Geojit Financial Services.
Towards the top of June, FPI promoting witnessed a declining pattern. If the market rises in July, anticipating or responding to good first quarterly outcomes, FPIs might promote once more. This pattern might be halted solely when the greenback stabilizes and US bond yields decline, he added. Vijay Singhania, chairman of TradeSmart, mentioned the fairness markets appear to be impacted by the hammering of currencies, particularly Asian market currencies.
“The quarter ended June recorded one of many worst efficiency for the reason that 1997 Asian forex disaster. As if this was not dangerous sufficient, India was the worst performing forex in Asia,” he added. Given the danger emanating from a chronic inflation, international central banks are shifting in direction of normalizing rates of interest and quantitative tightening at a fast tempo, mentioned Kunal Valia, Chief Investment Officer – Listed Investments, Waterfield Advisors.
In such a state of affairs, the place not simply the price of capital goes up, however the liquidity faucet can also be drying up, outflows from rising market belongings are resulting in extra volatility and drawdowns, he famous. Apart from equities, FPIs had been internet sellers within the Indian debt market too final month. They had been internet sellers to the tune of Rs 1,414 crore in June, which, nevertheless, was considerably decrease than May’s determine of Rs 5,505 crore.
“Broadly, from the risk reward perspective and with interest rates rising in the US, Indian debt doesn’t appear to be an attractive investment option for foreign investors,” Morningstar’s Srivastava mentioned. In addition to India, FPI flows in June was adverse in different rising markets like Indonesia, Philippines, South Korea, Taiwan and Thailand, he added.