FPI outflow crosses Rs 1-lakh crore mark in 2022

Foreign investors have withdrawn a net Rs 1,14,855.97 crore from the Indian markets in 2022 so far amid heightened inflationary concerns and geopolitical tensions.
 
Foreign portfolio investors (FPIs) have sold domestic equities worth Rs 48,261.65 crore thus far in March, taking the year to date count in 2022 to a colossal Rs 1,14,855.97 crore, as per depositories' data.
 
The exit of FPIs was mainly due to inflationary pressures and intensifying macroeconomic conditions worldwide following the Russia-Ukraine war, according to experts.

Also Read: FPIs register longest selling streak since 2008
 
This is the sixth consecutive month when overseas investors have pulled out their holdings on a net basis from the Indian equity market. FPIs fear that India would be affected more by commodity price increases, notably in crude oil since the country is a major importer.
 
"While Russia-Ukraine war has limited the direct impact on the Indian economy, given our lower dependence of imports from these countries, higher commodities inflation poses a key risk both in terms of macro parameters such as the balance of payments and inflation as well as corporate earnings estimates on account of higher input costs," Shibani Kurian, Senior EVP & Head- Equity Research at Kotak Mahindra Asset Management Company, told PTI.
 
Kurian further added that India is a net importer of crude oil and it is estimated that every 10 per cent increase in crude oil price impacts the current account deficit by around 30 basis points (bps), CPI inflation by around 40 bps and GDP by around 20 bps, all else remaining constant. "However, unlike the past, this time around there are a few offsets from a domestic standpoint, which includes high forex reserves, strong FDI flows and improvement in export growth," Kurian noted.
 
As per depositories' data, foreign investors pulled out Rs 28,526.30 crore from Indian equities in January, Rs 38,068.02 crore in February and Rs 48,261.65 crore in March so far. 

Also Read: FPIs pull out over Rs 17,000 from Indian markets in just three days of March
 
"The Indian equity markets continue to be in a grind, influenced by and reacting to incremental news flow on the global front, especially related to the geopolitical situation and Fed rhetoric. The two key challenges and monitorables for the markets in the near term are the persistent inflationary pressures and the rising bond yields," said Milind Muchhala, Executive Director at Julius Baer.
 
While the inflationary pressures have been building up over the past few months, the geopolitical situation has worsened the situation as Ukraine and Russia are large players in the energy and several commodities, and the prices of several of these have spiked up since the beginning of the crisis, Muchhala added. 
 
"A prolonged geopolitical situation and elevated prices will gradually start weighing on demand and profitability and can lead to a cut in growth and earnings estimates. Also, the recent rise in bond yields can have implications for flows and equity valuations," Muchhala said.