Equity market sees worst sell-off by FPIs in FY22 at ₹1.4 lakh cr.

The figure compares to the influx of a whopping ₹2.7 lakh crore in the previous fiscal year

The figure compares to the influx of a whopping ₹2.7 lakh crore in the previous fiscal year

Foreign portfolio investors dumped Indian stocks worth a record 1.4 lakh crore in FY 2021-22, mainly due to a surge in coronavirus cases, concerns about the risk to economic recovery and the global turmoil caused by the war between Russia and Ukraine. The figure compares to the influx of a whopping ₹2.7 lakh crore in the previous fiscal year

The year ending March 2022 marked the worst ever exodus by Foreign Portfolio Investors (FPI) from the domestic stock market. They raised ₹88 crore in FY19, 14,171 crore in FY16 and 47,706 crore in FY09, deposit data shows.

In addition, experts said FPI flows were expected to remain volatile in the near term, given headwinds in the form of high crude prices and inflation.

FPIs have withdrawn net amounts in nine of the 12 months in the fiscal year just closed. They have been selling domestic stocks since October 2021.

Multiple factors had led to an outflow of FPI in fiscal fiscal year 22, the year when coronavirus cases spiked in April-May 2021, the peak period of the second wave of the COVID-19 pandemic, said Himanshu Srivastava, associate director – Manager Research , Morningstar-India.

“The sudden and sharp rise in the country’s coronavirus pandemic and its ferocity surprised foreign investors, who until then had sailed comfortably in anticipation of rapid economic recovery. Furthermore, the daily number of COVID-19 cases exceeded the 4-lakh mark in May, and concerns about risks to the economic recovery were heightened with the lockdown imposed in several states to contain the spread of the virus, which deterred foreign investors,” he added.

Overall, FPIs started fiscal year 2021-22 negative and sold shares worth ₹12,613 crore in April-May 2021. However, the scenario started to improve in mid-May as the daily caseload started a downward trend.

Foreign investors returned in June, making a net investment of 17,215 crore as a result of the country’s consistently declining cases of coronavirus. Most states began easing lockdowns, which boded well for business activity to pick up.

These factors aside, good quarterly results and positive long-term earnings growth prospects fueled FPIs’ interest in Indian equities. In addition, the pick-up of the vaccination campaign boosted investor sentiment and fueled expectations that the second wave would have a limited impact on the country’s economy.

However, following an upbeat mood in June, FPIs became net sellers in July as they withdrew ₹11,308 crore in the month on the US Fed’s aggressive statement that it could raise interest rates much earlier than expected. Furthermore, rising valuations, a sharp rise in oil prices and the strength of the US dollar made them wary of near-term risks.

They returned to equities again in August, and the positive momentum continued into September due to the improving macro environment and the positive outlook. This was also driven by the expectation that as the vaccination rate increased and much of the population received vaccines, the economy would improve and quickly get back on track.

However, the pace of FPI flows could not be sustained as the trend reversed in October and net withdrawals continued through March 2022 due to uncertainties on both the global and domestic fronts.

The spread of the highly transmissible Omicron strain of the coronavirus in India and other parts of the world has become a concern. In addition, the US Federal Reserve’s anticipation of rate hikes and the deteriorating geopolitical environment amid the war between Russia and Ukraine had an impact on the flow of FPIs, Mr Srivastava added.

According to Nikhil Kamath, co-founder of True Beacon and Zerodha, India looks relatively expensive, and FPIs could rebalance China and other opportunities by reducing their exposure to India.

Atanuu Agarrwal, co-founder of UpsideAI, said the main reason for the outflows remains the changing interest rate environment and the Fed’s signal to end the stimulus.

“There are several other reasons — India is expensive, crude oil has skyrocketed, INR is weak, conflict between Russia and Ukraine leads to flight to safety. never seen a sale of this magnitude,” he added.

On the other hand, foreign investors made a net investment of ₹1,628 crore in the debt markets in 2021-22. This comes after a net outflow of ₹50.443 crore in the previous fiscal year.


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