₹45,000cr gone in 6 sessions: Why FIIs are fleeing India
What's the story
Foreign institutional investors (FIIs) have offloaded Indian equities worth over ₹45,000 crore in just six trading sessions in October. This brings their total net outflows from the equity market to a whopping ₹3.6 lakh crore this year. The relentless selling has put additional pressure on domestic equities, with the Nifty 50 index falling nearly 14% year-to-date.
Market trends
Outflows in October slightly lower than September
Data shows that foreign portfolio investors (FPIs) sold equities worth ₹45,125.67 crore in October. This is slightly lower than the ₹45,536.89 crore they pulled out in September.
March recorded the highest monthly outflow of the year at ₹1.22 lakh crore, followed by net selling of ₹63,167 crore in April.
Investment strategy
Strategist explains headwinds for market
Despite intermittent periods of foreign inflows, the selling has continued. FPIs were net buyers in February, July, and August but these inflows haven't offset the heavy selling during other months.
V K Vijayakumar, Chief Investment Strategist at Geojit Investments, said, "Elevated crude prices and high US bond yields are the two strong headwinds for the market now. So long as these headwinds remain strong the market will remain under pressure."
Investment shift
High US bond yields make American fixed-income assets more appealing
High US bond yields have made American fixed-income assets more appealing than emerging-market equities.
The yield on the 10-year US Treasury bond is above 5.2%, offering foreign investors relatively good returns without the currency and equity risks associated with investing in India.
The selling pressure is likely to continue until Indian equity valuations become more attractive and the risk-reward balance improves, especially if US bond yields remain high.
Oil concerns
Brent crude remains above $100
Crude oil is another major concern for Indian markets. Brent crude remains above $100 per barrel.
Uncertainty surrounding Iran, the Strait of Hormuz, and regional energy infrastructure has kept global oil supplies vulnerable to disruption.
A renewed rise in crude prices could add to inflationary pressures, put further pressure on the rupee, and hurt companies facing higher fuel and raw-material costs.
Market stability
Domestic institutional investors have absorbed some of the selling pressure
While foreign investors continue to pull money out, domestic institutional investors have helped absorb some of the selling pressure.
"Domestic institutional demand has provided an important cushion, absorbing much of the pressure from overseas investors and helping stabilize the market," said Ponmudi R, CEO of Enrich Money.
"RBI intervention [on the rupee] may help smooth excessive volatility," but a more durable recovery in currency will require greater stability in oil prices and global yields, he added.