Sell-off continues: FPIs pull-out Rs 266-bn in Oct on rupee, oil concerns

Foreign investors have pulled out close to Rs 266 billion ($3.6 billion) from the Indian capital markets in the first two weeks of this month on unabated fall in rupee and rising crude oil prices and US treasury yields.

This is much higher than the over Rs 210 billion net outflow seen in entire September. Prior to that, overseas investors had put in a net amount of Rs 74 billion in the capital markets (both equity and debt) in July-August.

According to the latest depository data, foreign portfolio investors (FPIs) sold equities to the tune of Rs 179.35 billion during October 1-12 and bonds worth Rs 86.45 billion, taking the total to Rs 265.8 billion ($3.6 billion).

FPIs have been net sellers almost throughout this year except a couple of months. However, experts said the swiftness of the exit in October thus far has shaken the market.

Negative sentiments from the global market on concerns over a slowing world economy led by lingering trade war between the US and China triggered the FPI pullout, said Vinod Nair, Head of Research, Geojit Financial Services.

The sentiment was also dampened by the International Monetary Fund (IMF) downgrading the outlook for world economy to 3.7 per cent growth last week.

"Rise in oil prices and US treasury yields and a tightening of global dollar liquidity are the key reasons for the FPI selling as they have induced high volatility in currency, bond and equity markets.

"One must however remember that this is a global phenomena across emerging markets and not limited to India alone. Of course, the impact of rise in oil prices is higher for India as it imports most of its oil requirements. The matter was further exacerbated by the IL&FS default and the rout in NBFC debt papers," said Alok Agarwala, Senior Vice President and Head Investment Analytics at Bajaj Capital.

Making a similar point, Vidya Bala, Head of Mutual Fund Research at FundsIndia, said rising rates in the US, strengthening dollar and higher US earnings have been triggers for money moving out of India and other emerging markets to the US.

"While these have been the primary factors for the pullout, locally, rising oil price and oil marketing companies absorbing price cuts, the recent spate of management-related issues in banks and tightening liquidity in NBFCs have been immediate triggers," she added.

She further said the volatility can be expected to continue for other reasons too, like US sanctions on Iran which take effect in November. Iran is a major source of crude oil for India.

"India also has some key state elections coming up, which could provide cues to FPIs for next year's central elections," Bala added.

So far this year, FPIs have pulled out over Rs 300 billion from equities and nearly Rs 570 billion from the debt markets.