Foreign portfolio investors (FPIs) have withdrawn a net ₹18,856 crore from the Indian markets in February so far amid geopolitical tensions and chances of a rate hike by the US Federal Reserve.

As per depositories data, overseas investors took out ₹15,342 crore from equities and ₹3,629 crore from the bonds market between February 1-18. At the same time, they invested ₹115 crore in hybrid instruments.

This translates into a net outflow of ₹18,856 crore during the period under review.

This is the fifth consecutive month of foreign fund outflows.

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Foreign fund outflows

"Geopolitical tension and chances of rate hike by US Fed has triggered outflows from FPIs in the recent times from the Indian equity markets. They sharply increased the pace of selling after the US Fed indicated an end of the ultra-loose monetary policy regime," said Himanshu Srivastava, Associate Director - Manager Research, Morningstar India.

Shrikant Chouhan, Head - Equity Research (Retail), Kotak Securities, said investors shifted to defensive sectors and safe havens such as bonds and gold as tensions flared between the US and Russia over Ukraine.

"FPIs net outflow from Indian equity in last one year is close to USD 8 billion. This figure is highest since 2009. In February till date FIIs have sold worth approx ₹17,500 crore. The FPI view of India is that India has already considered earnings growth of 16-18 per cent CAGR for FY23 and FY24, based on expectations of an earnings and economic growth cycle...

"Yet these estimates don't account for risks of rising cost of capital in the US (India's cost of capital is linked to US cost of capital) and therefore PE contraction potential, nor of inflation risk hurting earnings growth estimates," said Rajesh Bhatia, MD and CIO, ITI Long Short Equity Fund.

FPIs can be expected to sell more going forward, unless market corrections make valuations attractive, said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Domestic institutional investors and HNIs are slowly accumulating high quality financials whose valuations have turned attractive due to sustained FPI selling, he added.