Indian markets have been witnessing a continued outflow by foreign portfolio investors owing to higher bond yields and the geopolitical conflict in Middle East.
FPIs have continued to pull out of Indian markets in the second half of October. According to NSDL fortnightly data, the net outflows between October 16 and 31 stood at Rs 12,010 crore compared to a net selling of Rs 5,867 crore in the first two weeks of October mainly owing to higher selling in equity segment.The investments are spanned across equity, debt, debt VRR(Voluntary Retention Route)and hybrid segments.
“We think the worst of the outflows may be done with. Now as the yields soften and the Fed goes on hold for longer period, we may see heavy return of foreign money over the next few months,” said Sanjiv Bhasin, director at IIFL Securities.
He explained the three major reasons for the persisting selling by foreign investors. Firstly, with the hardening of bond yields in the US at almost 5%, there will “definitely” be outflows by exchange-traded funds, back into the bond yields in the US as investors would refrain from putting their money in riskier assets like equities.Agreed Amnish Aggarwal, director of research at Prabhudas Lilladher. “In the second half of October, the 10 Year G-Sec rates in the US inched closer to 5% which reduced the incentive for investors to invest in the emerging markets.”Meanwhile, Bhasin pointed out that the geopolitical unrest between Israel and Hamas are driving investors to make safe bets, while a weaker rupee against the US dollar has led to higher ETF outflows.Financials sector saw the highest outflows in equity segment, worth Rs 7,336 crore between October 16-31 in comparison to Rs 4,468 crore in the first half. The amount of investment that banks and other BFSI firms have from foreign investors is usually high, explained Aggarwal. If these foreign investors have to pull out, financial would be on the top of the list to begin with, he added.
Net investments in debt segment decreased to Rs 2,375 crore between October 16 and 31, from Rs 4,006 crore during October 1 through October 15. The debt VRR segment witnessed inflows worth Rs 442 crore in the period under consideration, as against outflows of Rs 36 crore in the first two weeks of October. The outflows into hybrid segment also increased to Rs 63 crore from Rs 53 crore, as per the data.
After five months of net inflows, FPIs turned net sellers in Indian markets. In the current fiscal year till date, FPIs have bought Rs 1.53 trillion in Indian markets.
