Amid fear of coronavirus-led global recession and increasing number of Covid-19 cases in India, risk-averse foreign investors are dumping Indian stocks and bonds in search of safer investment avenues. Foreign portfolio investors (FPIs) have pulled out investment (net) in excess of ₹1-lakh crore (₹55,600 crore from equities and ₹54,240 crore from bonds) in just 16 trading days in March, plunging the market into a crisis.
FPI sell-off in March is the highest-ever monthly outflow of foreign funds in the history of the capital market and the sell-off was far worse than what was seen during the great recession in 2008. 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.
“In the backdrop 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, its impact on the economy in the near term could be ‘severe’.
In contrast, FPI investments in Indian equities touched a five-year high of ₹101,122 crore during the last calendar year. The foreign investors were also net buyers of debt with a net investment of ₹25,882 crore during the same period. However, in just three months through the current calendar year, FPIs have turned 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. FPIs were net buyers in January and February with a net investment of ₹13,942 crore in equities.
India’s dubious distinction
The record 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.
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.”
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.