With the ongoing Russia-Ukraine crisis, February 2022 has witnessed the worst foreign outflows in 2 years. About Rs 35,506 crore foreign portfolio investors or FPIs have extracted their funds from the Indian equity market in the month.
Besides, Feb 2022 is the fifth consecutive month for FPIs extracting their holdings, given the poor macro economical conditions witnessed across the globe.
The domestic economy was already wounded after the US Federal Reserves announced to take an aggressive stance on monetary tightening of funds, by increasing interest rates to curb the rising inflation.
This, in conjunction with the ongoing invasion of Ukraine by Russia will only deteriorate the economic conditions domestically and globally, along with the FPIs continuing to pull out their funds from the domestic market.
FPIs Pull Out Over Rs 35,000 Crore in Feb 2022
Foreign portfolio investors have sucked out Rs 35,506 crore from the domestic market in Feb 2022, continuing their streak for the 5th straight month, starting Oct 2021.
February’s sum is also the highest amount since FPIs pulled out funds worth Rs 1,18,203 crore in March 2020.
The associate director of Morningstar India, Himanshu Srivastava stated that outflows have been increasing since the US Fed’s decision to unwind stimulus measures and increase interest rates faster than expected.
“In addition to that, brewing tension between Russia and Ukraine, and with fears of war between the two countries looming large, foreign investors adopted a cautious approach and started to stay away from investing in emerging markets like India”, Srivastava added.
Future Worries Regarding the Domestic Market
Inflows from foreign investors closely track four parameters, states Shrikant Chouhan from Kotak Securities.
- Currency valuation, i.e., how strong or weak the Indian Rupee is in comparison to the US greenback.
- Higher crude oil prices are another reason for FPIs to invest in emerging markets like India, as over 90% of oil used in the country is imported, indicating a gravy dependence on oil.
- If the US 10-year bond yield rate starts to rise, FPIs prefer to invest in safer bond markets than holding their money in riskier assets like equity, that too in emerging markets.
- Geopolitical tension, like the one going on right now between Russia and Ukraine.