FIIs pull out record $7.5 bn from Indian capital mkts in Jun

In their highest monthly outflow, overseas investors pulled out a record Rs 44,162 crore (over $ 7.5 billion) from the Indian capital markets this month amid concerns over the depreciating rupee.

The net investments withdrawn in June include outflows worth about Rs 33,135 crore ($ 5.7 billion) from the debt securities and another Rs 11,027 crore ($ 1.85 billion) from equities, data available with market regulator Sebi showed.

For the debt market alone, the June withdrawals were the highest ever for a month and took place amid the rupee hitting a record low.

A weaker rupee further erodes the returns earned by the foreign investors in Indian markets, which were seen trading through turbulent times during June except for a late revival in equities on the last trading day.

FIIs have turned net sellers of debt securities here for the first time in 13 months now.

They were net buyers to the tune of Rs 1.63 lakh crore in debt and equities together during the last year 2012.

Despite the huge sell-offs this year, the net FII inflows for 2013 so far still stand at a significant Rs 63,000 crore.

Market experts attributed the June sell-off to weakness in Indian currency, which is instrumental in FIIs exiting the debt markets as rising cost of hedging a volatile rupee hurts the yield differential the FIIs work with.

Of late, the Indian currency has been consistently hitting new record lows and it slumped to a life-time low of Rs 60.76 (intra-day) against the US dollar on June 26. Since April 30, the rupee has depreciated by over 10%.

Global markets have seen turmoil after Federal Reserve said it is likely to taper $ 85-billion-a-month bond purchase from later this year and end it ultimately next year if US economic recovery is up to its expectations.

Fed's ultra-loose monetary policy drove asset prices, including those in emerging markets, and fears are that inflows may be hit if US monetary stimulus comes to an end.

FIIs had been aggressive buyers of bonds since the beginning of 2013 on account of higher yields offered by the government and corporate debt. Debt market had witnessed a net inflow of close to Rs 25,000 crore in January-May this year.

Steps taken by the government to ease FII investment rules by doing away with sub-limits and reducing the withholding tax on debt investments had also helped the segment.

However, the recent withdrawal has hit debt markets hard. So far this year, foreign investors have pulled out a net Rs 9,088 crore from the debt market.

As on June 28, the number of registered FIIs in the country stood at 1,753 and the total number of sub-accounts at 6,404 during the same period.