FPIs pull out Rs 155 bn in April on back of rising crude, G-sec yields

Foreign investors have pulled out over Rs 155 billion from the Indian capital market in April, making it the steepest outflow in 16 months, due to surge in global crude prices and rise in yields of government securities.

This comes after an inflow of Rs 116.54 bn in equities in March and an outflow of over Rs 90 billion from the debt market during the same period.

Prior to that, foreign portfolio investors (FPIs) had pulled out over Rs 116.74 bn from the country's capital market (equity and debt) in February.

As per the latest depository data, FPIs withdrew a net sum of Rs 55.52 bn from equities and another Rs 100.36 bn from the debt market in April, taking the total to Rs 155.88 bn ($2.4 billion).

This is the steepest outflow from the capital market since December 2016, when FPIs had pulled out over Rs 270 bn.

So far this year, FPIs have put in over Rs 71 bn in equities and withdrew close to Rs 140 bn from the debt market.

"An increase in (government securities) yields in the domestic market has seen FPIs pulling out money from the Indian debt markets, whereas outlflow of money from equity market is a function of rise in global yields and deterioration in macroeconomic fundamentals of Indian economy largely due to rising crude prices.

"Besides, FPIs have also booked profit ahead of the upcoming state election," Rakesh Tarway, head of research at Reliance Securities.

According to Ajay Bodke, CEO at Prabhudas Lilladher, there has been a heightened risk aversion as markets are watching with caution the outcome of key developments related to US-Iran and Karnataka elections.

"Firstly, whether a headstrong Trump tears the Iran nuclear accord despite fervent pleas from other signatories. Withdrawal by the US and reimposition of tough economic sanctions on Iran has the potential to send global crude oil prices soaring as Iran is one of the largest suppliers of crude," he said.

This would impact all the oil importing economies including India and adversely affect it's CAD, fiscal deficit, imported inflation and create headwinds for economic growth, he added.

"Secondly, an adverse outcome for the BJP in Karnataka polls may embolden the opposition's shrill criticism of government's economic policies creating roadblocks for future reforms. Conversely, a favourable outcome for the BJP will strengthen its resolve to carry forward the momentum in the next round of assembly polls in October 18," Bodke pointed out.