Just three months into the current fiscal, foreign investors have pulled out more than ₹1-lakh crore from Indian equities, or more than 75 percent of their sell-off in the whole of FY22. As per depositories data, FPIs have sold Indian equities worth ₹1.07-lakh crore between April-June quarter as compared to the ₹1.40-lakh crore of outflow in FY22. 

Foreign investors have been relentlessly selling Indian equities since October 2021 due to a host of domestic and international factors. Some of the reasons include monetary policy tightening by global central banks, rising inflation, better yields in the US market, geopolitical tensions due to Russia-Ukraine war and its consequent impact on oil and commodity prices.

FPIs intensified their sell-off in June as they pulled out ₹50,203 crore from Indian equities, which is the highest monthly outflow after March 2020, when the foreign investors net sold equities worth ₹61,973 crore. 

Banking & financial services and IT sector—the top two sectors with highest FPI assets—witnessed the maximum brunt of the sell-off during the first quarter. While the financial services sector saw a net outflow of ₹38,522 crore, the IT services sector witnessed ₹30,918 crore of net outflow. Collectively, these two sectors accounted for 65 per cent of the total foreign fund outflow from equities during April-June quarter. 

Selling exhaustion

However, FPIs slowed down the pace of sell-off in July. For the first time in several weeks, FPIs bought equity worth ₹2,150 crore on July 6. “There are signs of selling exhaustion by FPIs. The major factors driving FPI selling during the last 2-3 months have been the steady appreciation of the dollar and rising interest rates in the US. If the rupee consolidates at the current level, which in turn depends mainly on the price of crude, FPI selling will come down,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services. 

“But India’s high trade deficit at $25 billion is an area of concern. If the trade deficit continues to remain high, further depreciation of the rupee above ₹80 to the dollar is likely in the next 2 months. FPIs are likely to wait and watch for rupee movements before buying big in India,” he added. 

FPIs are still net sellers of Indian equities to the tune of ₹4,096 crore as of July 8.