Foreign portfolio investors (FPIs) have drawn out a total of ₹18,856 crore for the Indian markets in February so far ( with a week still left in the month) in the middle of ongoing geopolitical tensions between Ukraine and Russia, and in anticipation of interest rates hike by the U.S. Federal Reserve in March.
According to the depositories data, foreign investors liquidated equities worth ₹15,342 crore and bonds worth ₹3,629 crore from February 1 to 18. During the same period, they invested ₹115 crore in hybrid instruments.
It is the fifth straight month of foreign fund outflows.
“Geopolitical tension and chances of a rate hike by the US Fed have triggered outflows from FPIs in the recent times from the Indian equity markets. They sharply increased the pace of selling after the US Fed indicated an end to the ultra-loose monetary policy regime,” said Himanshu Srivastava, Associate Director – Manager Research, Morningstar India To PTI.
Shrikant Chouhan, Head – Equity Research (Retail), Kotak Securities, said investors have changed their focus to defensive sectors and safe havens such as bonds and gold as tensions between the U.S. and Russia over Ukraine escalates.
“FPIs net outflow from Indian equity in the last one year is close to USD 8 billion. This figure is the highest since 2009. In February to date, FIIs have sold worth approx Rs 17,500 crore. The FPI view of India is that India has already considered earnings growth of 16-18 per cent CAGR for FY23 and FY24, based on expectations of earnings and economic growth cycle…
“Yet these estimates don’t account for risks of the rising cost of capital in the US (India’s cost of capital is linked to US cost of capital) and therefore PE contraction potential, nor of inflation risk hurting earnings growth estimates,” said Rajesh Bhatia, MD and CIO, ITI Long Short Equity Fund, quoted PTI.
FPIs are projected to offload more in the coming market sessions unless market corrections make valuations attractive, said V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Domestic institutional investors and HNIs are gradually building up positions in high-quality financials, whose values have become more appealing as a result of continued FPI selling, he noted.