Foreign portfolio investor selling tops $2 billion in May: NSDL data

Foreign portfolio investor (FPI) sell-off has crossed the $2 billion mark in just the first six trading sessions of May. Overseas funds pulled out $2.01 billion from domestic equities by May 9, according to data provided by NSDL. On Friday, they sold shares worth another $250 million, based on provisional data from stock exchanges. The selling pressure from FPIs has come amid the hardening of bond yields in the US as a central bank official indicated that interest rates will likely need to be held at a two-decade high for longer than previously anticipated.

“The recent upward surprises to activity and inflation suggest the likely need to keep policy at its current level until we have greater confidence that inflation is moving sustainably toward 2 per cent,” Federal Reserve Bank of Boston President Susan Collins said this week. The pullout from Indian markets this month is the highest among emerging market peers.

The selling by FPIs has come at a time when traders are increasingly anxious about the margin of victory of the incumbent Narendra Modi government in the ongoing Lok Sabha elections. The VIX index on Friday rose for a 12th straight day to hit a fresh 20-month high of 18.47.

"The big selling happened after the US Fed's statement, which suggested that rates would be higher for longer. Investors felt that if higher rates are available in the US with dollar-denominated investments, it is not worth taking risks in emerging markets. With Fed rates looking higher for longer, even the Reserve Bank of India (RBI) is unlikely to do anything different. The election uncertainty is also causing concern, with rumours suggesting that the ruling combine may not have the dominance they had in the first 10 years. People want to keep some dry powder ahead of the result announcement on June 4,” said U R Bhat, co-founder of Alphaniti Fintech.