Foreign investors ended up as net sellers of Indian equities for the eighth straight month as they intensified their sell-off in May to pull out nearly ₹40,000 crore over a range of domestic and global challenges. 

According to the latest data, foreign portfolio investors (FPIs) have pulled out ₹39,993 crore from Indian equities in May followed by ₹17,144 crore of outflow in April. 

“FII outflows have been on account of change in the stance of major central banks globally over the last year. The federal reserve, in particular, has shifted the monetary stance on interest rates and liquidity by raising rates as well as providing balance sheet reduction plans. This has led to outflows from emerging markets like India,” said Kunal Valia, CIO - Listed Investments, Waterfield Advisors. 

FPIs have been on a selling spree in the Indian market since the middle of last fiscal due to rising inflation rates, growing hawkishness among global central banks as well as in India, the ongoing Russia-Ukraine war and the consequent rise in crude oil prices, predicted slowdown in global economic growth. FPIs pulled out ₹2.06 lakh crore from Indian equities between October 2021 and May 2022 after making a record net investment of ₹2.74 lakh crore in FY21.

“On the global front, there are concerns of exchange rate fluctuation and if there is an aggressive rate hike by the US Federal Reserve this may lead to an appreciation of the dollar rate, rising bond yields in the US etc. Also, the continued war between Russia and Ukraine is impacting crude prices,” said Manoj Purohit, Partner and Leader – Financial Services Tax, BDO India. 

Purohit added that on the domestic front, concerns over rising inflation, the expectation of further hikes in the rates by the RBI and monetary policy changes are key factors that may impact the overall economic growth. “The sentiments of large foreign investors have made them conservative while investing in the Indian market since there is a fear that high inflation could hamper business and ultimately consumer spending.” 

Waterfield Advisors’ Valia said though any reversal inflow seems unlikely in the short term, he expects the pace of outflow to slow down. “This is because of anticipated further rate hikes by the US Fed and other central banks this year. Flows back to emerging markets like India will depend on inflation tapering off and the emergence of growth concerns in the US over the next few months.”