The relentless selling off of Indian stocks by foreign investors continued, as they retreated further ₹25,200 crore from the Indian stock market in the first half of this month, due to rising interest rates around the world and concerns over rising COVID cases.
“Headwinds in terms of rising crude prices, rising inflation, tighter monetary policy, etc. are weighing on the indices. In addition, investors are worried about growth expectations as the Inflation remains elevated globally, so we believe PFI flows are likely to remain volatile in the near term,” said Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities.
Foreign portfolio investors (FPIs) remained net sellers for seven months to April 2022, taking out a massive net amount of more than ₹1.65 crore lakh shares.
Going forward, REIT selling will continue in the coming weeks as heat waves in and out of the market will make investors sweat a little more, said Vijay Singhania, Chairman of TradeSmart, adding that the sale led to the fall of FPI’s stake in the Indian companies. 19.5%, the lowest since March 2019.
After six months of rampant selling, REITs turned net investors in the first week of April due to the market correction and invested ₹7,707 crore shares.
However, after a short break, they became net sellers again during the shortened holiday week of April 11-13, and selling continued in the following weeks as well.
REIT flows continue to remain negative in May so far and have sold around ₹25,216 crores from May 2 to May 13, according to custodian data.
The RBI, in an off-cycle monetary policy review on May 4, raised the repo rate by 40 basis points (bps) with immediate effect and the CRR by 50 bps from May 21. In a similar vein, the US Fed also raised rates by 50 bps on May 4, the biggest hike in two decades.
Among investors, these developments have stoked fears that further significant rate hikes are likely to occur in the future. This triggered a sell-off in Indian equity markets by foreign investors, which also continued this week, said Himanshu Srivastava, Associate Director – Manager Research, Morningstar India.
“REITs have been selling off in India since November 2021 due to valuation concerns. Rupee depreciation adds to concerns for REITs. Dollar appreciation is broadly negative for emerging market equities. And that will continue to be a triggering REIT outflows from India,” VK Vijayakumar, chief investment strategist at Geojit Financial Services, said.
Excluding equities, REITs withdrew a net amount of ₹4,342 crores from the debt market during the period under review.
“Indian bonds have become unattractive due to high yields as the RBI has been slower to raise rates compared to the US Fed. Once the RBI raises rates further, this will subside,” he said. Sonam Srivastava, manager of smallcase.
According to Morningstar’s Srivastava, “apart from rate hikes by the RBI and the US Fed, uncertainty surrounding the Russian-Ukrainian war, high domestic inflation figures, crude price volatility and weak quarterly results don’t paint an incredibly positive picture. The recent rate hikes could also slow the pace of economic growth, which is also concerning.”
Apart from India, other emerging markets including Taiwan, South Korea and the Philippines have seen outflows during the month of May so far. PTI SP DRR
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