Continuing their selling spree, foreign investors have dumped Indian equities worth over Rs 39,000 crore this month so far amid rising bond yields in the US, an appreciating dollar and prospects of more aggressive rate hikes by the Federal Reserve.
With this, the net outflow by foreign portfolio investors (FPIs) from equities has reached Rs 1.66 lakh crore so far in 2022.
Going ahead, FPI inflow into India is likely to remain volatile, given the headwinds in terms of elevated crude prices, inflation and tight monetary policy, according to Shrikant Chouhan, Head - Equity Research (Retail), Kotak Securities.
"Recently, there are signs of selling exhaustion by FPIs, and domestic institutional investors (DIIs) and retail buying are emerging as a strong counter to FPI selling.
"At higher levels, FPIs may continue to sell. If globally markets are stable, FPI selling will be easily absorbed by DII plus retail buying," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Foreign investors have remained net sellers for the seven months to April 2022, withdrawing a massive Rs 1.65 lakh crore from equities.
FPIs turned net investors in the first week of April due to a correction in the markets and invested Rs 7,707 crore in equities.
However, after a short breather, they once again turned net sellers in the subsequent weeks.
FPIs have dumped equities worth a net Rs 39,137 crore during May 2-27, data with depositories showed. Two trading sessions are still left in the month.
"Relatively high valuations in India, rising bond yields in the US, an appreciating dollar and concerns regarding the possibility of a recession in the US triggered by aggressive tightening are factors behind FPI pullout," Vijaykumar said.
Himanshu Srivastava, Associate Director - Manager Research, Morningstar India, said investors are also cautious due to the fear that high inflation could hamper corporate profits and impact consumer spending.
These factors, along with the continuation of war between Russia and Ukraine, could further dislodge global economic growth.
On the domestic front too, concerns over surging inflation as well as further rate hikes by the RBI, and its impact on the economic growth, loomed large, he added.
The sell-off by FPIs continued in the month. However, the week closed on a slightly positive note. Part of the reason is that global markets took the negative US GDP numbers in its stride and moved higher. The rub off was visible in Indian markets, especially in the last two days of the week, said Vijay Singhania, Chairman, TradeSmart.
In addition to equities, FPIs withdrew a net amount of about Rs 6,000 crore from the debt market during the period under review.
Apart from India, other emerging markets, including Taiwan, South Korea, Indonesia and the Philippines, too have witnessed outflows in the month of May till date.