FPIs Remain In Sell-Off Mode; Pull Out Rs 26,600 Crore In Two Weeks

Foreign investors have pulled out close to Rs 26,600 crore from the Indian capital markets in the first two weeks of this month on unabated fall in rupee and rising crude oil prices and U.S. treasury yields.

This is much higher than the over Rs 21,000 crore net outflow seen in entire September. Prior to that, overseas investors had put in a net amount of Rs 7,400 crore in the capital markets (both equity and debt) in July-August.

According to the latest depository data, foreign portfolio investors sold equities to the tune of Rs 17,935 crore during Oct. 1-12 and bonds worth Rs 8,645 crore, taking the total to Rs 26,580 crore.

FPIs have been net sellers almost throughout this year except a couple of months. However, experts said the swiftness of the exit in October thus far has shaken the market.

Negative sentiments from the global market on concerns over a slowing world economy led by lingering trade war between the U.S. and China triggered the FPI pullout, said Vinod Nair, head of research, Geojit Financial Services.

The sentiment was also dampened by the International Monetary Fund downgrading the outlook for world economy to 3.7 percent growth last week.

"Rise in oil prices and U.S. treasury yields and a tightening of global dollar liquidity are the key reasons for the FPI selling as they have induced high volatility in currency, bond and equity markets,” said Alok Agarwala, Senior Vice President and Head Investment Analytics at Bajaj Capital.

"One must however remember that this is a global phenomena across emerging markets and not limited to India alone. Of course, the impact of rise in oil prices is higher for India as it imports most of its oil requirements. The matter was further exacerbated by the IL&FS default and the rout in NBFC debt papers," Agarwala said.

Vidya Bala, head of mutual fund research at FundsIndia, agreed. She said rising rates in the U.S., strengthening dollar and higher U.S. earnings have been triggers for money moving out of India and other emerging markets to the U.S.

"While these have been the primary factors for the pullout, locally, rising oil price and oil marketing companies absorbing price cuts, the recent spate of management-related issues in banks and tightening liquidity in NBFCs have been immediate triggers," she said.

She further said the volatility can be expected to continue for other reasons too, like U.S. sanctions on Iran which take effect in November. Iran is a major source of crude oil for India. "India also has some key state elections coming up, which could provide cues to FPIs for next year's central elections."