FPI outflows at US dollar 5 bn in November on demonetisation drive

Foreign investors have pulled out close to USD 5 billion from the capital markets in November so far amid concerns over the impact of demonetisation coupled with fears of rate hike by the US Federal Reserve.

Net withdrawal by FPIs from equities stood at Rs 15,763 crore during November 1-25, while the same from the debt market was Rs 16,154 crore during the period under review, translating into total outflow of Rs 31,917 crore (USD 4.7 billion), according to exchange data.

Foreign portfolio investor (FPI) outflows come following withdrawal of more than Rs 10,306 crore on net basis from the capital markets (equity and debt) last month. Prior to that, the equity market had witnessed inflows of over Rs 20,000 crore.

This year so far, FPIs have invested a net sum of Rs 37,146 crore in stocks while they pulled out Rs 13,278 crore from the debt market, resulting in combined net inflow of Rs 23,868 crore.

Domestic cash crunch following demonetisation drive to curb black money sparked intense selling pressure.

"The pull out by FPIs started in October 2016, on uncertainty over US election results and was felt across emerging markets.

"This was further exasperated in November due to several factors -the uncertainty over US ties with the emerging markets, post Trump victory, the near term impact on corporate earnings, and economic growth from demonetisation in the near term and impact of GST on companies' near term cash flows," FundsIndia.Com COO Head of Mutual Fund Research Vidya Bala said.

"In the debt market, FPIs have been net sellers in seven out of 11 months thus far. The rally in the Indian government securities and the decreasing spread between US interest rates and India could be a reason; FPIs book profits in the gilt rally in India," she added.

Recently, US Federal Reserve chief Janet Yellen reiterated that the central bank may hike interest rates "relatively soon", which made investors more anxious.