Foreign investors continued their selling binge in March, withdrawing a staggering 41,000 crore from the equities market in anticipation of rate hikes by the US Federal Reserve and a deteriorating geopolitical situation over the Russia-Ukraine conflict.
Experts also predict that flows from foreign portfolio investors (FPIs) will remain turbulent in the near term due to headwinds such as rising petroleum prices and inflation.
According to depositories’ statistics, FPIs were net sellers in the equity market last month, to the tune of Rs 41,123 crore. This was much higher than February’s net withdrawals of 35,592 crore and January’s net withdrawals of 33,303 crore.
Since October 2021, foreign investors have been withdrawing money from equities, pulling out a net 1.48 lakh crore between October 2021 and March 2022.
Atanuu Agarrwal, Co-Founder of UpsideAI, commented on the latest outflow “The primary reason continues to be the changing interest rate environment and the Fed’s signal to end the stimulus programme. There are numerous other factors at play: India is expensive, crude prices have risen, the Indian rupee is weak, and the Russia-Ukraine conflict has prompted a flight to safety. But, if the Fed had signalled a pause in raising rates, we might not have seen such a large-scale sale “he continued.
The withdrawals, according to Himanshu Srivastava, Associate Director – Manager Research, Morningstar India, can be ascribed to the expectation of a rate hike by the US Federal Reserve, as well as the deteriorating geopolitical climate, with Russia and Ukraine embroiled in a war.
According to Nikhil Kamath, co-founder of True Beacon and Zerodha, India appears to be expensive on a relative basis, and FPIs may be adjusting their portfolios by reducing their exposure to India.
This is the first time, cyclically, that we’ve seen a sustained inverse link between FPI flows and the Nifty, he noted.
Aside from equities, the debt market experienced net outflows of 5,632 crore in March. Other rising markets, including as Taiwan, South Korea, and the Philippines, saw FPI outflows in March, but not as much as India. The US Federal Reserve recently raised its policy rate by a quarter percentage point, putting an end to its ultra-easy pandemic-era monetary policy and signalling more rate hikes this year.