FPIs withdraw Rs 5,936 cr from equities in May amid worries over Covid wave

Foreign investors have pulled out Rs 5,936 crore from the Indian equities in the first week of May amid worries over the intense second wave of coronavirus infection and its fallout on the economy.

Foreign investors had pulled out Rs 9,659 crore in April after infusing money in the preceding six months, according to the depositories' data.

If fears of COVID-19 persist among overseas investors, then further redemptions cannot be ruled out, Himanshu Srivastava, Associate Director - Manager Research, Morningstar India, stated.

According to the data, foreign portfolio investors (FPIs) withdrew a net sum of Rs 5,936 crore from Indian equity markets during May 3-7.

Prior to April's outflow, FPIs had been infusing money in equities since October. They invested over Rs 1.97 lakh crore in equities during October 2020 to March 2021. This included a net investment of Rs 55,741 crore in the first three months of this year.

"The nervousness among FPIs with regards to the second wave of coronavirus pandemic in India was visible in the flow numbers for this week," Srivastava said.

Alok Aggarwala, Chief Research Officer, Bajaj Capital, said the pullback by FPIs is consistent with a sharp rise in COVID-19 cases in India, state-wide lockdowns and the consequent slowdown in growth.

In addition, a weak currency added to the outflows by FPIs, he added.

Harsh Jain, co-founder and COO of Groww, opined that the recent withdrawal could be due to profit booking.

"FPIs had started investing heavily around April 2020. Since then, the markets have climbed significantly and many of the stock picks made by them have given good returns over the same period," he said.

He further said that many FPIs are starting to book profits they have made over the last one year and that could be the reason why we are seeing an outflow of money from Indian equities.

On the other hand, FPIs have put in net sum of Rs 89 crore in the debt securities in the first week of May after selling net amount of Rs 118 crore in the preceding month.

"FPI flows in debt have turned positive due to expectations of slower economic recovery, a continued accommodative monetary policy stance and the launch of G-SAP 1.0 by the RBI which has led to change in outlook for interest rates," Bajaj Capital's Aggarwala said.

So far this year, overseas investors have put in a net sum of Rs 40,146 crore in equities, however, they pulled out net amount of Rs 15,547 crore from debt securities.

According to Morningstar India's Srivastava, rising COVID cases in the country and extension of lockdowns could play a spoilsport.

"Moreover, the uncertainty over the degree of impact of the second wave of COVID-19 crisis on the economy could continue to keep foreign investors on the sidelines. This can also potentially force FPIs to adopt a wait and watch approach for a relatively longer period of time," he said.

Consequently, this can also drive them away from Indian equities until the situation comes under control or at least there are visible signs of the scenario improving, he added.

He, further, said that focus for FPIs would continue to be on economic numbers and how soon India gain its economic momentum back. Any surprise on that front can dent sentiments further and adversely impact foreign flows.

Groww's Jain hopes the virus spread will be controlled soon as vaccination is open for all adults. Last year too, investment picked up massively as soon as the case numbers started going down.