FPIs pull out over Rs 1 trillion in March over coronavirus scare

As the coronavirus pandemic is triggering fears of a global recession, foreign investors have started rowing back from the Indian capital markets by withdrawing a massive over Rs 1 lakh crore in March after remaining net buyers for six consecutive months.

In order to contain the spread of coronavirus, lockdowns have become a norm world over and have led the FPIs to adopt a cautious stance, market experts said.

The depositories data showed that a net amount of Rs 59,377 crore was pulled out from equities and Rs 52,811 crore was withdrawn from the debt segment by foreign portfolio investors (FPIs) between March 2-27.

The total net outflow stood at Rs 1,12,188 crore in March, which comes after six consecutive months of investment by FPIs since September 2019.

This is also the highest withdrawal ever since the FPI data was made available on National Securities Depository Ltd.

"With complete lockdown announced by the government, the businesses and trade have come to a halt, which could further slow down the pace of domestic economic growth," said Himanshu Srivastava, senior analyst - manager research at Morningstar India.

On March 24, Prime Minister Narendra Modi announced a nationwide lockdown for 21 days as part of efforts to stem the outbreak of coronavirus infections.

"While the world has intensified its fight against coronavirus, the signs of it abetting is yet to be observed. Though several measures have been announced to fight the disease and resources have been put in place, the concerns about the global economy witnessing a prolonged downturn have gained momentum. This is what is keeping foreign investors away from emerging markets like India, which are considered to be more susceptible towards these events," Srivastava added.

In the current scenario, FPIs have preferred to take a flight to safer investment options, such as dollar denominated asset classes and gold, as against investing in fixed income securities of emerging markets like India, he said.
 

Regarding the future of FPI flows, he said the situation should stabilize as and when there are visible signs of coronavirus coming under control. However, until then, this will continue to be one of the major focus areas for FPIs, since it may have a more serious impact on the already slowing global economy.

According to Harsh Jain, co-founder and COO, Groww, "measures announced by the Finance Minister and RBI are encouraging but we will have to wait and see what impact it will have. We have to keep an eye on future announcements and their effects on the economy.