US dollar bills. (Photographer Xaume Olleros/Bloomberg)

Foreign Outflows Exceed Rs 1 Lakh Crore In The First Ten Months Of 2018 

Foreign investors remained net sellers of Indian debt and equity through the month of October, selling the most in nearly two years last month. The continued outflows have kept the rupee weak, although the Indian unit has rebounded from its all-time lows.

Foreign portfolio investors have sold over Rs 1 lakh crore across the debt and equity markets, shows data from the National Securities Depository Ltd. Of this, October saw net sales of Rs 38,906 crore - the steepest this year and the most since November 2016.

The outflows in October were dominated by equities rather than debt. This, according to Madhavi Arora, economist at Edelweiss Securities, was a reflection of the weak equity risk sentiment globally in the month of October.

While selling in the equity markets was heavier last month, for the year, foreign investors have sold more Indian debt that equities. This is partly because debt contributed to significant inflows in the last calender year and a reversal of that trend has led to higher debt outflow this year, Arora added.

Foreign investors pumped in Rs 1.48 lakh crore into Indian debt last year. So far this year, they have withdrawn Rs 58,864 crore.

Foreign portfolio outflows at a time when the current account deficit is expected to widen to between 2.5-3 percent of GDP could mean a negative balance of payments for the year.

HSBC expects the balance of payments deficit to be to the tune of 0.5 percent of GDP this year, it said in a report dated October 15.

The widening growth differential of India with the world could raise the current account deficit, but it could attract more growth-sensitive capital inflows. However, assuming no major increase in rate-sensitive inflows, the Balance of Payment (BoP) could remain in deficit, of  close to 0.5 percent of GDP.
HSBC Research

This, in turn, has also put pressure on the rupee and forex reserves.

The rupee has fallen by nearly 13 percent so far this year. Foreign exchange reserves declined by 4.28 percent on an year-to-date basis, falling from $ 411.12 billion to $393.52 billion, according to data published by the RBI on a weekly basis.

FPI outflows have been one of the factors attributed to the depreciation in the rupee in recent times. The depreciation in the rupee has been both a cause and effect of foreign fund outflows.  
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