Continuing their selling spree for the sixth consecutive month, foreign investors pulled a whopping Rs 41,000 crore out of the Indian stock market in March in anticipation of rate hikes by the US Federal Reserve and deteriorating geopolitical environment amid of the Russian-Ukrainian war. In addition, flows from foreign portfolio investors (REITs) are expected to remain volatile in the near term given headwinds in terms of high crude prices and inflation, experts said.
According to data available from custodians, REITs were net sellers of Rs 41,123 crore in the stock market last month. This was far higher than net withdrawals of Rs 35,592 crore in February and Rs 33,303 crore in January.
Foreign investors have taken money out of shares over the past six months, withdrawing a net Rs 1.48 lakh crore between October 2021 and March 2022. Commenting on the latest outing, Atanuu Agarrwal, co-founder of UpsideAI, said: “The main reason remains the changing interest rate environment and the signal from the Fed to end the stimulus.”
“There are several other reasons – India is expensive, crude has skyrocketed, INR is low, the Russian-Ukrainian conflict is leading to a flight to safety. But all things being equal, if the Had the Fed signaled a delay in raising rates, we couldn’t have seen a selloff of that magnitude,” he added.
Making similar arguments, Himanshu Srivastava, Associate Director – Manager Research, Morningstar India, said the outflows can be attributed to the anticipation of a rate hike by the US Fed and the deteriorating geopolitical environment. with Russia and Ukraine engaged in a war. Nikhil Kamath, co-founder of True Beacon and Zerodha, said India looks expensive on a relative basis, and REITs could rebalance in China and other opportunities by reducing their exposure to India.
Cyclically, this is the first time we’ve noticed a prolonged inverse correlation between FPI and Nifty flows, he added. Besides equities, the debt market saw net outflows of Rs 5,632 crore in March.
Srikant Chouhan, head of equity research (retail) at Kotak Securities, said global markets have noted progress in negotiations between Russia and Ukraine and are hoping for gradual normalization. Equity markets were strong globally, while commodities saw some correction from high levels.
“However, given the headwinds in terms of high crude prices, inflation, etc., REIT flows are likely to remain volatile in the near term,” he added. Apart from India, other emerging markets such as Taiwan, South Korea and the Philippines also saw FDI outflows in March.
Recently, the US Fed raised its key rate for the first time since 2018, by a quarter of a percentage point, ending its ultra-loose pandemic-era monetary policy and signaling further rate hikes. This year. The war between Russia and Ukraine also continues. Therefore, in a rapidly changing global landscape, foreign flows into Indian equities could shift in either direction depending on how the underlying scenario evolves, Morningstar India’s Srivastava said.