FPIs withdraw Rs 41,000 crore in March amid expectations of a rate hike by the Federal Reserve

Experts said that inflows from foreign portfolio investors are expected to remain volatile in the near term given the headwinds in terms of higher crude oil prices and inflation.

Foreign portfolio investors | US Federal Reserve Bank | Fed rate hike

Continuing the selling spree for the sixth consecutive month, foreign investors pulled a whopping Rs 41,000 crore from the Indian stock market in March in anticipation of an interest rate hike by the US Federal Reserve and a deteriorating geopolitical environment amid the war between Russia and Ukraine.

Moreover, inflows from foreign portfolio investors (FPIs) are expected to remain volatile in the near term given the headwinds in terms of higher crude oil prices and inflation, experts said.

According to data available with warehouses, FPIs were net sellers to the tune of $41,123 crore in the stock market last month.

This was well above the net withdrawals of Rs.35,592 crore in February and Rs.33,303 crore in January.

Foreign investors have been withdrawing money from the shares since the past six months, netting Rs 1.48 thousand crore between October 2021 and March 2022.

Commenting on the latest outflow, Atano Agarwal, co-founder of UpsideAI, said, “The main reason remains the changing interest rate environment and the Fed’s signal to end stimulus.”

“There are several other reasons – India is too expensive, Crude Oil is up, INR is weak, conflict between Russia and Ukraine leads to escape to safety. But all things being equal, if the Fed signaled a delay in raising rates, we haven’t seen Selling this big.

Making similar arguments, Himanshu Srivastava, Associate Director – Director of Research, Morningstar India, said the outflows could be attributed to the expectation of rate hikes by the US Federal Reserve, and the deteriorating geopolitical environment with Russia and Ukraine at war.

India looks expensive on a relative basis, and foreign investment institutions can rebalance China and other opportunities by reducing their exposure to India, said Nikhil Kamath, co-founder of True Beacon and Zerodha.

He added that this is the first time we have periodically observed a prolonged inverse relationship between FPI and Nifty streams.

Apart from stocks, the debt market saw net outflows of ₹5,632 crore in March.

Srikant Chauhan, Head of Equity Research (Retail) at Kotak Securities, said global markets have noticed progress in negotiations between Russia and Ukraine and are hoping for a gradual normalization.

Stock markets were strong globally, while commodities saw some correction from higher levels.

“However, given the headwinds in terms of higher crude oil prices, inflation etc., FPI flows are expected to remain volatile in the near term,” he added.

Aside from India, other emerging markets such as Taiwan, South Korea and the Philippines also saw FPI outflows in March.

Recently, the US Federal Reserve raised its policy interest rate for the first time since 2018, by a quarter of a percentage point, finally ending its pandemic-era ultra-easy monetary policy and signaling an increase in interest rates this year.

The war between Russia and Ukraine continues as well. So, in a rapidly changing global landscape, foreign flows into Indian stocks could change in either direction depending on how the underlying scenario changes, said Srivastava of Morningstar India.

(The title and image for this report may have been reformulated only by the Business Standard staff; the rest of the content is automatically generated from a shared feed.)

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First published: Sunday, 03 April 2022. 14:28 IST

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