Amid rising bond yields, FPIs pull out Rs 5,156 cr in March so far

Overseas investors pulled out a net Rs 881 cr from equities and Rs 4,275 cr from the debt segment between March 1-5, taking the total net withdrawals to Rs 5,156 cr

Reversing the two-month buying streak, foreign portfolio investors (FPIs) pulled out Rs 5,156 crore from Indian markets in the first week of March amid profit booking and rising bond yields in the US.

According to FPI statistics available with depositories, overseas investors pulled out a net Rs 881 crore from equities and Rs 4,275 crore from the debt segment between March 1-5, taking the total net withdrawals to Rs 5,156 crore.

Prior to this, FPIs invested Rs 23,663 crore in February and Rs 14,649 crore in January.

On FPI outflows in March, Himanshu Srivastava, associate director - manager research, Morningstar India said that this could be attributed to profit booking by investors with markets touching all-time highs.

"Besides, weakness in the global markets on concerns of rising bond yields and inflation didn't augured well for the flows into equities." The declining trend in March, so far, is mainly on account of the rising bond yields in US and appreciation in the dollar index, according to VK Vijayakumar, chief investment strategist at Geojit Financial.

"Bond markets are discounting reflation in the US due to the massive monetary and fiscal stimulus. But the US 10-year yield is unlikely to move beyond, say 1.7%, given the Fed's declared policy to keep interest rates near zero through 2023. The upcoming FOMC Meet is likely to emphasize the need to keep rates down for an extended period of time," Vijayakumar added.

This can cool the bond markets and stabilize equity markets, he further said.

Harsh Jain, co-founder and COO at Groww, said such behaviour is common whenever the US bonds' yields rise.

"Most of the emerging markets are facing FPI outflows with higher outflows witnessed in Taiwan and S.Korea. This calendar year to date Taiwan has seen USD 9.4 billion of FPI outflows whereas S.Korea has seen outflows of USD 8.1 billion," said Rusmik Oza, executive vice president, head of fundamental research at Kotak Securities.

Going ahead the focus will be on economic numbers and how soon India gains the economic momentum back. However, as markets continue to surge and with high valuations, the possibility of profit booking remains, which could slow down the pace of net flows, according to Srivastava.