FPIs pull out $1 bn from Indian markets in Feb in wake of global sell-off

This is against the total inflow of over Rs 137.8 billion by foreign portfolio investors in January, the latest data with depositories showed

Foreign investors have pulled out so far this month a staggering $1 billion, or Rs 68.5 billion (Rs 6,850 crore), from the Indian stock market in the wake of sell-offs globally.  

This is against the total inflow of over Rs 137.8 billion (Rs 13,780 crore) by foreign portfolio investors (FPIs) in January, the latest data with depositories showed.

"In January, the US unemployment rate stood at a 17-year low of 4.1 per cent. In addition to this, there is a good possibility of an increase in the US Federal Reserve rate to counter the rise in inflation. Overall we witnessed a sell-off globally. The FPI pull out from Indian markets is most likely a result of this," Harsh Jain, co-founder and COO, online investment platform Groww, said.

Echoing similar views, Nalini Jindal, chief investment advisor at Intellistocks, said the US inflation is hitting several years low, raising a possibility of a hike in the Fed rate; and this has resulted in caution among FPIs.

"The recent Budget 2018 announcement to tax long-term capital gains and bringing FPIs into local compliance is one of the reasons as FPIs may want to book some profits to enjoy the benefits of grandfathering. This, however, could be a short-term scenario as India is one of the much sought after destinations for investments by FPIs," she added.

According to the depositories data, FPIs withdrew a net amount of $1 billion (Rs 68.44 billion ot Rs 6,844 crore) from equities during February 1-16.

However, they put in Rs 32.15 billion (Rs 3,215 crore) in the debt markets during the period under review.

Explaining the reason for inflow in the debt markets, Jain said, "India's 10-year bond yield crossed 7.5 per cent, the first time since 2016 July. Similar is the case with the 10-year treasury yield. The inflow in debt market is expected when the arbitrage between the selling debt and buying equity squeezes."

Interestingly, strong earning numbers in India besides a fall in crude prices in the past few days and correcting valuations make Indian markets look less expensive now, while domestic institutional investors are tapping this opportunity and have been net buyers in the Indian market in the last few days.