Foreign Investors Withdraw Rs 40,000 Crore From Indian Market In Last 30 Days: These Are The Primary Reasons

It appears that foreign investors are continuing on its heavy selling spree for the eighth consecutive month.

As they pulled out nearly Rs 40,000 crore from the Indian equity market in May.

How Did This Happen?

The move is caused by the fears of an aggressive rate hike by the US Federal Reserve that dented investor sentiments.

The data with depositories shows that the net outflow by foreign portfolio investors (FPIs) from equities reached Rs 1.69 lakh crore so far in 2022.

The Head – Equity Research (Retail), Kotak Securities said that moving ahead, FPI flows will remain volatile in the emerging markets on account of rising geo-political risk, rising inflation, tightening of monetary policy by central banks, among others, Shrikant Chouhan.

The data shows that foreign investors withdrew a net amount of Rs 39,993 crore from equities in May. 

Weakness In Indian Market

This massive outflow is becoming the major factor for the weakness in the Indian market.

According to the Associate Director – Manager Research, Morningstar India, Himanshu Srivastava the latest sell-off is due to concerns over the prospects of more aggressive rate hike by the US Fed going ahead.

Why Would This Happen?

This year, the US Fed has hiked rates twice in order to battle the  surging inflation caused by the disruption in supply chain due to the war between Russia and Ukraine.

Besides this, the Partner & Leader – Financial Services Tax, BDO India, Manoj Purohit said, “There are concerns of uncertainty on the ongoing military conflict between Russia and Ukraine which is impacting the crude prices. Globally, the rate hikes by the US Federal Reserve, tightening of monetary policy by the global central banks and appreciation of the foreign currency dollar rate has triggered the offshore investors to offload the equities from sensitive markets,”.     

Also, investors are cautious due to the fear that high inflation could hamper corporate profits and also impact consumer spending, said Srivastava.

 The above factors, along with the continuation of war between Russia and Ukraine could further dislodge global economic growth.

Further adding that in the domestic front, the concerns over surging inflation as well as further rate hikes by the RBI, and its impact on the economic growth, loomed large.

The Chief Investment Strategist at Geojit Financial Services, Vijayakumar said, “If the dollar and the US bond stabilize, FPI selling is likely to stop and may even reverse. On the contrary, if US inflation remains elevated and dollar and bond yields continue to rise, FPIs may resume selling. US inflation data is the key,”.

Besides India, the other emerging markets such as Taiwan, South Korea, Indonesia and the Philippines, also witnessed outflow in the month of May.