FPI outflow in April at Rs 80 bn on trade negotiations, rising bond yields

Foreign investors have pulled out nearly Rs 80 billion (Rs 8,000 crore) from the Indian capital markets so far this month due to 'considerable' volatility in global markets on account of the ongoing trade negotiations and firming up of bond yields.

This comes following an inflow of Rs 116.54 billion (Rs 11,654 crore) in equities last month and an outflow of over Rs 90 billion (Rs 9,000 crore) from the debt markets.

Prior to that, foreign portfolio investors (FPIs) had pulled out over Rs 116.74 billion (Rs 11,674 crore) from the country's capital markets (equity and debt) in February.

According to latest depository data, FPIs withdrew a net sum of Rs 41.8 billion (Rs 4,181 crore) from equities and another Rs 35.86 billion (Rs 3,586 crore) from the debt markets during April 2-10.

"There is considerable volatility in global markets on account of the ongoing trade negotiations and firming up of bond yields. Domestic political developments, high valuations and application of long-term capital gains tax on equities have further dampened sentiment in India," said Ashish Shanker, head investment advisory at Motilal Oswal Private Wealth Management.

"This has led to FPIs withdrawing from equities in India. However, this is too short a time to arrive at a conclusion around this. One will have to wait and watch as to whether this trend sustains," he added.

Ajay Bodke, CEO and chief portfolio manager- PMS, at Prabhudas Lilladher, said the Indian equity market is in wait and watch mode as the fourth quarter earnings season starts unfolding and turbulence in global equities leads to a cautionary stance on emerging markets (India being no exception) on the part of FPI investor.

"However, strong revival in corporate earnings in 2018-19, strengthening industrial growth as evidenced in latest IIP numbers, benign CPI print and acceleration in aggregate demand after overcoming the twin headwinds of demonetisation and rollout of GST will limit any downside for Indian equities and lead to medium-term outperformance vis-a-vis other emerging markets," he added.