Foreign investors have pulled out USD 280 million from the Indian equity markets so far this year, while domestic institutional investors (DIIs) continue to invest more aggressively and have put in a staggering USD 10 billion.
The latest round of outflow came after foreign portfolio investors (FPIs) had poured in USD 7.77 billion in 2017, while DIIs had invested USD 14 billion during the same period, said a report by Morningstar Investment Adviser.
While in January, FPIs bought net assets worth USD 2.2 billion, they were net sellers to the tune of USD 1.8 billion in February. Again, in March, they invested USD 1.8 billion in equity markets, whereas they offloaded net assets worth USD 3 billion during April-June. However, they put in USD 330 million in July and USD 242 million in August so far.
On the other hand, domestic institutional investors started the year on a negative note and withdrew USD 111 million in January, however, they put in money in February and the bullish trend continued so far in August. Overall, their investment in the equity market stands at USD 10 billion so far in 2018.
FPIs have adopted a cautious stance towards India and other emerging markets from the beginning of April.
"Initially surging bond yields in the US and high crude prices held investors on the tenterhook, later the dollar started to appreciate considerably, which did not augur well for emerging markets. Consequently, the country witnessed net FPI outflows.
"Expectation of more rate hikes by the US Fed had hurted sentiments, too," said Himanshu Srivastava, Senior Analyst - Manager Research, Morningstar.
On the valuation front, Indian markets, with their substantial runup over the last few years, did not look too attractive vis-a-vis other comparable peer countries. This also prompted FPIs to adopt a wait-and-watch approach towards India and look at other options available at attractive valuations and at a similar risk level, he added.
Again, overseas investors made a comeback in July and continue to be on the buying side so far in August.
"This recent net inflows from FPIs could be attributed to the improvement on the macro front, better earnings from Indian corporates, correction in the mid and small cap space and positive observations of IMF on India," Srivastava added.
For FPIs, India is like any other investment destination. They continually evaluate India with other countries to understand the risk reward profile it offers at a given time. Hence, they will not shy away from shifting to other investment destinations if that offers better prospects.
As for DIIs, India is the only investment destination.
Going ahead, Srivastava said the focus of FPIs would be the sustainability of economic growth and corporate earnings.
"Unless there is more evidence to suggest that both these factors are back on track, FPIs will continue to adopt a cautious stance," he added.
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