Economy

FPIs’ monthly sell-off hits historic high in March

NARAYANAN V Chennai | Updated on March 25, 2020

In just three weeks, India’s stock market has crumbled like a pack of badly stacked cards. Amid fears of a nationwide lockdown and corporates shutting down their operations to contain the spread of Covid-19, foreign investors have made a record sale of Indian equities and bonds, sending the market into a downward spiral.

According to data available with depositories, foreign portfolio investors (FPIs) have pulled out funds in excess of ₹1-lakh crore in just 15 trading sessions since the beginning of the month. This included a net of ₹55,600 crore from equities and ₹54,240 crore from bonds.

The net outflow as on date is the highest ever monthly outflow of foreign funds in capital market history. Prior to this, the highest outflow of FPI investments from equities was recorded in October 2018, when FPIs pulled out ₹28,921 crore from the segment after the IL&FS crisis broke out.

Eye on safe haven

“In the times of a pandemic-led economic crisis all over the world, FPIs tend to look for a safe haven and either exit or reduce holdings in emerging markets,” said Ajit Mishra, VP - Research, Religare Broking. He added that with the virus tightening its grip over India, leading to a potential nationwide lockdown, its impact on the economy in the near term could be ‘severe’.

In calendar 2019, FPI investments in Indian equities touched a five-year high of ₹101,122 crore. The foreign investors were also net buyers of debt with a net investment of ₹25,882 crore. However, in just three months of the current calendar year, FPIs have been net sellers in both the segments with a year-to-date net outflow of ₹41,658 crore in equities and a whopping ₹63,791 crore in debt.

The massive outflow of foreign investment has also made India one of the worst performing markets in the world. On Monday, benchmark indices Sensex and Nifty witnessed their biggest single-day fall. While the Sensex was down 3,934 points to close at 25,981, the Nifty fell 13 per cent to 7,610 points.

On Monday, within less than an hour of market opening, trading was halted for 45 minutes as the Sensex hit the 10 per cent lower circuit breaker. This is the second time in the month when trading had to be halted as panic selling led the market to hit the lower circuit. Prior to this, the market was halted on March 13.

In its technical outlook, ICICI Securities said: “Going ahead, we believe global cues will continue to dictate the market trend and are expected to remain highly volatile. To pause the ongoing corrective phase, the index needs to form a higher high-low for two to three consecutive sessions that would help the market to stabilise and open a meaningful pullback option. Failure to do so would lead to prolonged correction amid elevated global volatility.”

Sector-wise impact

On sector-wise impact, Religare’s Mishra said FIIs have a decent holding in prominent sectors such as private banks, IT, auto and oil and gas. These sectors are likely to be adversely impacted by the pandemic.

For instance, the Nifty Bank index fell from 29,701 points in the beginning of March to 16,918 points on Monday, while the Nifty Auto index fell from 6,993 points to close at 4,627 points during the same period.

“The Bank Nifty declined over 3,000 points back-to-back as pressure mounted due to the rapid spread of Covid-19 and the fear of global recession increasing. Call writers continued to dominate with selling continuing throughout the day,” ICICI Securities said.

According to data posted by the Union Health Ministry and updates from various State governments, the number of coronavirus cases in India crossed 500 on Tuesday.

“Global markets, including India, have seen an economic meltdown due to the increasing number of coronavirus cases. Further, the weak sentiments continued despite rate cuts and funding announced by major central banks,” Mishra said.

“We believe FPI sentiments would gradually improve with coronavirus cases reducing and the economic condition starting to show signs of improvement,” he added.

Published on March 24, 2020

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