Continuing its selling spree for the seventh consecutive month, foreign investors have pulled out Rs 17,144 crore from the Indian equity market in April amid fears of an aggressive rate hike by the US Fed that haunted such investors and dented sentiments.
Further, foreign flows are likely to remain volatile in the near term amid the high prospect of aggressive rate hikes globally and the headwinds in terms of higher crude prices, and rising Inflation, experts said.
Foreign portfolio investors (FPIs) remained net sellers for seven months to March 2022, withdrawing a massive net amount of Rs 1.65 lakh crore from equities. These were largely on the back of anticipation of a rate hike by the US Federal Reserve and due to the deteriorating geopolitical environment following Russia's invasion of Ukraine.
After six months of selling spree, FPIs turned into net investors in the first week of April due to correction in the markets and invested Rs 7,707 crore inequities. After a short breather, once again they turned net sellers during the holiday-shortened April 11-13 week, and the sell-off continued in the succeeding weeks too.
This makes foreign investors net sellers to the tune of Rs 17,144 crore in April, much lower than a net withdrawal of Rs 41,123 crore in March, data with depositories showed.
The sharp sell-off could be attributed to weak global cues after the US Federal Reserve Chairman Jerome Powell hinted at a 50 bps rate hike in May.
FPIs continued to be a net seller in April as "markets continued to price in the probability of aggressive rate hikes by the US Fed," Shrikant Chouhan, Head - Equity Research (Retail), Kotak Securities, said.
Himanshu Srivastava, Associate Director - Manager Research at Morningstar India, said, "The fears of an aggressive rate hike by US Fed, continued to haunt investors and denting sentiments. This has prompted investors to turn risk-averse and adopt a wait and watch approach with respect to investments in emerging markets like India".
According to Vijay Singhania, Chairman, TradeSmart, inflation rates have been a major reason for pulling out from equities in April. Another reason is a hike in US Fed rates up to 2.866 per cent.
Apart from equities, FPIs withdrew a net Rs 4,439 crore from the debt markets during the period under review.
According to Srivastava, there is nothing much at the moment, which could cheer up foreign investors and coax them to invest in Indian equity markets.
"Besides an imminent rate hike by US Fed, uncertainty surrounding Russia -Ukraine war, high domestic inflation numbers, volatile crude prices and weak quarterly results don't paint a very positive picture. Also adding to the worry is the resurgence of coronavirus cases in China. In such a scenario, FPIs typically adopt a wait and watch approach until greater clarity emerges," he said.
Under the given circumstances and fast-changing global landscape, foreign flows into Indian equities could continue to be under pressure, until there is a change in the underlying drivers and investment scenario, he added.
"With geopolitical factors impacting the market currently, FPIs flows are expected to remain volatile in the near term," TradeSmart's Singhania said.
Apart from India, other emerging markets, including Taiwan, S Korea and the Philippines witnessed outflows in the month of April to date.