Chart: March FPI Outflows Surpass Taper Tantrum Rout

Outflows from the Indian debt and equity markets in March are on track to be the highest on record, showed data available from the National Securities Depository Ltd.

Foreign investors have withdrawn a net amount of Rs 79,172 crore as of March 19, the data showed. Of this, foreign portfolio investors have sold Rs 39,880 crore in equity and Rs 40,154 crore in debt.

Over the month of March till the 19th of the month, the Indian rupee weakened by 2.9 percent.

The quantum of outflows in March has surpassed what was seen in 2013 at the time of taper tantrum, when the Indian rupee went into a free fall. That year, in June, foreign investors had sold Rs 44,162 crore in Indian debt and equity. In fact, the outflows are the highest monthly outflows on record going by NSDL data available till 2002. The final number for March could differ based on the data for the rest of the month.

To be sure, looking at just the quantum of outflows may not give the full picture since India has increased the foreign investor limit for debt investment over the years. Exposure of foreign investors to India even in equities may have risen over time.

Year-to-date, foreign investors have sold a net amount of Rs 69,245 crore.

Foreign investors have been selling heavily as global markets have turned turbulent amid a rapidly spreading coronavirus.

U.S. equity markets have corrected sharply despite emergency action from global central banks. The U.S. Federal Reserve has now done two rounds of emergency rate cuts, bringing down the fed funds rate to near zero. The Fed has also promised $700 billion in asset purchases.

Still, markets have remained volatile as the spread of coronavirus has raised the prospects of a sharp slowdown in the global economy.

In India, while the initial impact of the virus was likely to play out through the trade channels, the recent increase in the number of local cases detected has raised the prospect of weakness in domestic demand as well. As the number of cases of Covid-19 in India rise, the economic impact is expected to accrue from both the demand and supply side, said Soumyakanti Ghosh, chief economist at State Bank of India.

“On the demand side, adverse demand shock is expected to hit sectors such as air transport, tourism and hotels, which in turn will affects other sectors. Thus, depending upon the degree of forward and backward linkage of a sector (domestic and global) the impact of the Covid-19 will vary across sectors,” Ghosh said.

Reserve Bank of India Governor Shaktikanta Das, in a press conference on Tuesday, acknowledged the likely spillover on the Indian economy but declined to quantify the downside to growth. The Indian central bank has so far taken measures to ensure adequate liquidity in the foreign exchange and money markets but has stayed away from emergency interest rate cuts.