FPIs extend selling; pull out Rs 20 bn in July on fuel prices, weak rupee

Selling by FPIs in Indian debt markets could be attributed to higher fuel prices which fans fear that inflation may stoke further

Continuing their selling spree, foreign investors have pulled out over Rs 20 billion (Rs 2,000 crore) from the capital markets this month so far on higher crude oil prices and a depreciating rupee.

The latest sell-off comes after foreign portfolio investors (FPIs) withdrew over Rs 610 billion (Rs 61,000 crore) from the capital markets in the last three months (April to June). Prior to that, overseas investors had infused Rs 26.6 billion (Rs 2,661 crore) in March.

As per data compiled by depositories, net outflow in the debt markets stood at Rs 11.73 billion (Rs 1,173 crore) during July 2-20, while the same in equity was at Rs 858 crore, resulting in a net withdrawal of Rs 20.31 billion (Rs 2,031 crore).

"Selling by FPIs in the Indian debt markets could be attributed to higher fuel prices which fans fear that the inflation may stoke further. This, in turn, could widen the country's current account deficit thus putting pressure on the rupee which has already depreciated almost 8 per cent since the end of January this year," said Himanshu Srivastava, senior research analyst, manager research at Morningstar.

"Additionally, tightening of policy back in the US also does not augur well for the Indian debt markets. This trend may continue given there are expectations that the US Fed may hike rates further," he added.

Explaining about outflows from equity markets, Srivastava said higher crude oil prices, increasing retail inflation, depreciating rupee against the US dollar, high chances of further rate hikes by the US Federal Reserve and fear of global trade war are the key factors behind the trend.