FPIs pull out Rs 94 bn in September so far due to rupee fall, widening CAD

Foreign investors pulled out a massive Rs 94 billion ($1.3 billion) from the capital markets last fortnight, after putting in money during the previous two months, on widening current account deficit due to a surge in oil prices and depreciating rupee.

The latest outflow comes following a net infusion of close to Rs 52 billion in the capital markets, both equity and debt, last month and Rs 23 million in August.

Prior to that, overseas investors had pulled out over Rs 610 billion during April-June.

According to the latest depository data, foreign portfolio investors (FPIs) withdrew a net sum of Rs 43.18 billion from equities during September 3-14 and a net amount of Rs 50.88 billion from the debt market, taking the total to Rs 94.06 billion ( $1.3 billion).

Himanshu Srivastava, Senior Research Analyst at Morningstar, attributed the recent outflow to widening current account deficit due to a surge in oil prices, depreciating rupee, concerns over the government's ability to meet fiscal deficit targets and lower-than-expected GST collection.

"All these factors deteriorated the country's macro environment. It has also cast a doubt on the sustainability of the economic growth which is closely watched by the FPIs. This coupled with expensive valuation triggered a sell-off from FIIs in September," he noted.
 

Additionally, given the global trade tensions, there has also been risk-aversion among foreign investors which explains their cautious stance towards emerging markets like India, which are considered to be riskier than their developed counterparts, he added.

"FPIs have sold consumer stocks this month which had touched lifetime high valuations. Considering the favourable base effect dwindling in the consumer stocks they would have found it challenging to beat market expectations. Therefore some correction was overdue in these stocks and FPI selling has triggered that on valuation concerns," Reliance Securities Head Research Naveen Kulkarni said.