Foreign investors pumped in ₹11,119 crore in the Indian equities in December, making it the second consecutive monthly inflow, despite increasing concerns over the re-emergence of Covid-19 cases in some parts of the world.

However, foreign portfolio investors (FPIs) have turned cautious in recent days. The inflow in December was much lower compared to ₹36,239 crore invested by FPIs in the month of November, data with the depositories showed.

"Despite correction in the markets, increasing concerns over re-emergence of Covid in some parts of the world and recession worries in the US. FPIs remained net buyers in the Indian equity markets (in December)," Himanshu Srivastava, Associate Director-Manager Research, Morningstar India, said.

Also, in the midst of the ongoing uncertainty, many investors would have also chosen to book profits with Indian markets touching all-time high recently.

Overall, FPIs have made a net withdrawal of ₹1.21-lakh crore from the Indian equity markets in 2022 on aggressive rate hikes by the central banks globally, particularly the US Federal Reserve, volatile crude, rising commodity prices along with the Russia-Ukraine conflict.

This was the worst year for FPIs in terms of flow and withdrawal from equities comes following a net investment in the preceding three years.

FPIs made a net infusion of ₹25,752 crore in equities in 2021, ₹1.7-lakh crore in 2020, which was the best year, and ₹1.01-lakh crore in 2019. Before these investments, an outflow of ₹33,014 crore was seen in 2019.

The main trigger for the FPI net selling in 2022 is the rising interest rates in the US and Indian Rupee depreciation, VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said. "The dollar index is now below 104 from its recent peak of 114. If this trend sustains, FPIs are likely to turn buyers in India in 2023," he added.

Factors at play

From the short to medium term perspective, FPIs will continue with their investment in Indian equities but in a restrained manner, Morningstar India' Srivastava said. Sanjiv Bajaj, Jt. Chairman and MD, Bajaj Capital, said that FPI flows would be decided by a host of factors such as the US Federal's policy stance, oil prices movement, and development in the geopolitical situation.

On the other hand, foreign investors pulled out a net sum of ₹1,673 crore from the debt markets in December and the outflow for the year was ₹15,911 crore. This was followed by a net withdrawal of ₹10,359 crore from the debt markets in 2021 and ₹1.05-lakh crore in 2020.

FPIs have used debt segment for parking investments from a short-term perspective in the wake of uncertainties on the equity side. accordingly, they kept on buying intermittently in the debt segment thereby checking outflow from the segment, Morningstar India's Srivastava said.