Overseas investors have pulled out nearly Rs 48,000 crore from Indian capital markets in the first six months of 2018, making it the steepest outflow in a decade, following high crude oil prices and trade war worries.
They withdrew a net sum of Rs 41,433 crore from the debt markets, besides, a net amount of Rs 6,430 crore from equities during January-June period of the year, taking the total outflow to Rs 47,836 crore, latest update with depositories showed.
This was the biggest outflow since January-June 2008, when foreign portfolio investors (FPIs) had pulled out Rs 24,758 crore from the capital markets -- equity and debt.
Moreover, the latest withdrawal is much higher than than the outflow of Rs 41,216 crore witnessed in the entire 2008 -- during global financial crisis.
"FPI outflow and inflow is dependent on many macro and micro factors. Our macros are very closely linked to price of crude oil, which is the largest import bill for India. Increase in crude oil leads to an increased current account deficit and high domestic inflation.
"Rising current account deficit is putting pressure on INR exchange rates and higher domestic inflation will put upward pressure on interest rates. Weaker exchange rates and higher interest rates make dollar return weaker for FPIs, which leads to withdrawal of funds," said by industry experts.
It has been a bumpy ride this year as far as FPI flows are concerned and the fluctuations in net flows at times have been massive, thus making the entire proposition unpredictable.
While in January, FPIs invested a net sum of Rs 22,272 crore in the capital market. However, in February they were net sellers to the tune of Rs 11,674 crore. On the other hand, they again turned positive in March and put in Rs 2,662 crore.
However, they took bearish stance in April and the momentum continued till June. Over the past three months, overseas investor withdrew Rs 61,000 crore.
"Undoubtedly, this year has been extremely unfavourable from FPI flow perspective. This could be attributed to multiple factors. There has been significant outflow from India focused offshore funds and exchange traded funds (ETFs) which contributes a significant portion towards FPI flow,"
This shows an negative impact on the equity market and may extend the fear over the investors.The election focused policy announcement by the government may lift and safeguard the market in the forth coming quarters.
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