Portfolio flows in India are the most sensitive to shifts in risk sentiment globally and in an adverse scenario, potential portfolio outflows can average up to 3.2 per cent of GDP or $100 billion (₹7.8 lakh crore) in a year, an RBI article said.

The article, titled 'Capital Flows at Risk: India's Experience' published in the RBI's latest bulletin, further said in a 'black swan' event comprising a combination of shocks, potential portfolio outflows can rise to 7.7 per cent of GDP, highlighting the need for maintaining liquid reserves to quell such potential bouts of instability.

With the spate of emerging market crises since the 1990s and the experience with the global financial crisis and its aftermath, attention has turned from the benefits associated with capital flows to their consequences such as accentuating financial vulnerabilities, aggravating macroeconomic instability and spreading contagion, it said.

"For India, portfolio flows are the most sensitive to shifts in risk sentiment globally and spillovers," it said.

"Applying a capital flows at risk approach, it is observed that in an adverse scenario, potential portfolio outflows can average up to 3.2 per cent of GDP," said the article authored by RBI Deputy Governor Michael Debabrata Patra, along with Harendra Behera and Silu Muduli.

"In response to shocks to each of the determinants of a size that is at least equal to what has been observed in the historical experience, potential portfolio outflows can be in the range of 2.6 to 3.6 per cent of GDP, averaging to 3.2 per cent of GDP (or $100.6 billion in a year)," the article said.

It further said there is a 5 per cent chance of portfolio outflows from India of the order of 3.2 per cent of GDP or $100.6 billion in a year in response to a Covid-type contraction in real GDP growth, or a GFC (global financial crisis) type decline in interest rate differentials vis-a-vis the US.

A 'black swan' event could be characterised by a combination of all adverse shocks experienced in Indian history coming together, leading to a perfect storm.

Aggressive rate hike by the US Federal Reserve, coupled with elevated inflation and high valuation of equities continued to keep foreign investors at bay from the Indian stock market as they pulled out ₹31,430 crore in this month so far.

With this, net outflow by Foreign Portfolio Investors (FPIs) from equities reached ₹1.98 lakh crore so far in 2022, data with depositories showed.

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