FPIs declare quit India movement

Mumbai: There is a deluge of fund outflows from the Indian market as foreign investors are resorting to heavy selling in both domestic equity and debt market.

So far this year, foreign portfolio investors (FPIs) have given Indian capital markets a big thumbs-down, withdrawing Rs 90,746 crore, the highest ever from equity and debt market in the country.

This is also the first-ever year in which foreign investors have been net sellers in both the equity and debt market.

Foreign funds were consistent sellers in the market during the entire calendar year except for the months of January and March.

The October seems to be worst month with over Rs 19,500 crore being pulled out from equity market adding to the weakness of the market.

FPI outflows intensified in September with net equity outflows of $1.3 billon. However, the market has managed to stay afloat as the domestic fund buying accelerated after three months of slowdown with net mutual funds equity inflows of $1.6 billion. In the debt market too, the FPI sold $1.5 billion in September and YTD outflows stand at $7.1 billion.

“The huge selling by foreign funds is mainly on account of worsening macro economic situation and the sharp fall in rupee. Apart from that looming political uncertainty ahead of the state and national elections are making foreign players to tread cautiously in the Indian markets,” said an analyst with a leading foreign brokerage firm.

The rupee is the worst performing currency in Asian falling by over 15 per cent during the year.

The interest rate hike by Federal Reserve and a falling rupee led the FIIs out of the Indian market. With two and a half months still remaining in the current calendar year, the net FII withdrawals could well cross the psychological mark of Rs 1 lakh crore. Over the last two years, local investors, mostly post-DeMo first-time savers who were restless seeing money locked up in banks, haven't experienced any big market drawdown, analysts said.

Large scale outflow of foreign funds from both equities and bonds during last two years were more than matched by such local investors who were seduced by one-sided market movement accompanied by decade's low volatility, analysts said.

Several foreign brokerage firms like Goldman Sachs are less optimistic about Indian market.

Meanwhile, Bloomberg reported that ING Bank NV has lowered its year-end rupee forecast just as the currency is staging a rebound. Rising oil prices and political uncertainty ahead of state elections will see Asia’s worst-performing currency resume losses, according to Prakash Sakpal, an economist at ING in Singapore, whose estimate of 76.50 per dollar is the most bearish in a Bloomberg survey.

The rupee is highly correlated with oil prices, which are definitely moving higher, and that’s going to make the current account situation more difficult, Sakpal said in an interview. Investors will also start adding the political-risk premium to the currency.