Foreign Investors Pull Out Most Funds In A Week Since August 2015
A collection of U.S. one-hundred dollar bills. (Photographer: Paul Yeung/Bloomberg)

Foreign Investors Pull Out Most Funds In A Week Since August 2015

Overseas investors this week pulled the most out of Indian equity markets in more than four years as stocks tumbled amid a global selloff triggered by the novel coronavirus outbreak.

Foreign institutional investors withdrew Rs 11,368.7 crore from India’s equity market in the week ended Feb. 28, the most since August 2015, according to provisional data available on the National Stock Exchange of India Ltd. They pulled out Rs 19,436.9 crore during February, turning net sellers after three months.

The outflows led to the biggest decline in the Nifty 50 Index in 17 months in February, down 6.36 percent. Just in the week ended Feb. 28, the index tumbled more than 7 percent, the worst weekly decline since July 2009, joining the worst global selloff since 2008 crisis. The world economy is expected to slow down as the Covid-19 virus spreads outside China, stalling trade. Market veterans said the allocation to Indian equities by overseas investors may fall further as investors assess the economic impact of the outbreak.

As investors pull money out of emerging markets and invest in safe havens, a selloff in the emerging market index will impact the allocation of Indian stocks on that index, Seth Freeman, senior managing director at Glassratner Advisory, told BloombergQuint. “I can see this getting significantly worse over the next few weeks just because of the unknowns.”

While India is relatively immune, James Sullivan, head of Asia-ex Japan equity at JPMorgan, cautioned that if the growth premium of developing markets versus developed markets shrinks, allocation from emerging market funds will likely suffer in the short term.

The coronavirus threat comes when India’s economy is set to grow at its slowest pace in more than a decade on falling consumption. But, according to Prateek Agarwal, chief investment officer at ASK Investment Managers, the fall in crude oil prices saves India more import dollars. The head of India’s largest portfolio manager expects markets to make a comeback when governments across the world start pumping in excess liquidity. And he sees the falling stock prices as an “opportunity to buy”.

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