FPIs pull out Rs 196 billion in September; quantum of MF flows slows

Foreign portfolio investors (FPIs) have pulled out a combined Rs 196 billion from Indian debt and equity markets so far in September on concerns of widening current account deficit on the back of rising oil prices and sliding rupee and global trade wars.

According to the latest official data from NSDL, FPIs have withdrawn a net Rs 107.46 billion from the equity market and Rs 88.78 billion from debt between September 3 to September 26, taking the total amount withdrawn to Rs 196.24 billion ($2.7 billion), data show.

FPI, according to analysts, have been more nervous as regards the debt market given the sliding rupee, fiscal and current account deficits.

“India has been an off-benchmark bet for FIIs in debt markets. Going ahead, flows into equites will also depend on the overall flows into the emerging markets. There is bound to be some nervousness as we head closer to the general elections. The recent IL&FS event also dents confidence. It is difficult to say whether there will be outflows, but some moderation is on the cards going ahead,” says Gautam Chhaochharia, head of India research, UBS Securities.

FPIs were net sellers for five out of six months of the current financial year 2018-19 (FY19) in the equity segment and have pulled out Rs 272 billion thus far in financial year 2018 – 19 (FY19).

Meanwhile, the S&P BSE Sensex falling 5.6 per cent thus far in the month is set to post its sharpest monthly decline since February 2016, while the mid-cap and small-cap indices have dipped 9.5 per cent and 11.5 per cent, respectively.

Domestic mutual funds (MFs), on other hand, have remained bullish and continued to pour into Indian equities and have been net buyers for 26 consecutive months. Since August 2016, MFs have made net investment of Rs 2.41 trillion into equities, Securities and Exchange Board of India (Sebi) data show.

However, the quantum of flow over the past few months has reduced with their net investment totalling Rs 157 billion in the July – September quarter, as compared to an average around Rs 300 billion during the past five quarters. Thus far in September, their investment in equity and debt segments touched Rs 288 billion. 

Industry experts, however, are not alarmed by the developments and suggest investors have been churning money (intra-asset allocation) between balanced, arbitrage, debt and equity segments within the broad mutual fund space. Events such as confusion over dividend distribution tax, grandfathering of long-term capital gains and regular profit booking also impacted the overall market sentiment and flows, albeit to a limited extent.

“I would not attribute the slowdown to any major negative sentiment. Flows into the systematic investment plans (SIPs) have been healthy. That said, HNI (high networth individuals’) flows into mutual funds have tapered off, as they have bene increasing allocation to portfolio management (PMS) and alternate investment funds (AIFs). So, the drop in mutual fund flows has been actually diverted to these two segments. Domestic investors have prevented the markets from falling at a time when the foreign investors have sold out,” explains Sunil Subramaniam, managing director and chief executive officer, Sundaram Mutual.

Chhaochharia of UBS sees the Nifty50 index at around 10,500 levels in December 2018 and maintains the risk-reward for Indian markets remains unattractive despite the recent correction. Information technology (IT), private banks with retail liability franchises are among his top overweight sectors.

Financial	FPI Investments (Rs billion)
Year	Equity	Debt
2009-10	1102	324
2010-11	1101	363
2011-12	437	500
2012-13	1400	283
2013-14	797	-281
2014-15	1113	1661
2015-16	-142	-40
2016-17	557	-73
2017-18	256	1190
2018-19 **	-272	-461
** upto 26-Sep-2018
Source: NSDL