Foreign portfolio investors (FPIs) have turned net sellers in March, withdrawing $4.4 billion or Rs 40,217 crore in the first seven trading sessions of the month till March 11 – the highest outflows in 13 months. The sell-off comes on the back of FPIs turning net buyers in February of $1.7 billion or Rs 27,427 crore.
Market experts said that though things in India seemed to be improving, in terms of earnings, the latest crisis in the West Asia has again forced them to sell aggressively.
Macroeconomic Headwinds
Ashwin Patil, head of fundamental research at LKP Securities believes high prices of crude has increased risks to inflation, the current account deficit and currency stability – factors that typically weigh on foreign investor sentiment toward emerging markets.
He added that global investors have shifted toward safer assets such as the US dollar amid rising uncertainty, with the recent uptick in US treasury yields further contributing to capital outflows from emerging markets including India.
Sectoral Perspective
Arun Kejriwal, director, Kejriwal research and investment added that the biggest pain point in the markets are the expensive valuations in mid and small cap despite underwhelming returns and disappointment in earnings numbers in the last two quarters, leading to FPI sell-off in those segments. He expects this uncertainty to continue for at least a couple of months and says that the end of the war and stable rupee are essential for better market conditions for FPIs.
V K Vijaykumar, chief investment strategist, Geojit Investments thinks that the underwhelming returns in the Indian markets in the last one year along with positive returns in other emerging markets has encouraged investors to look elsewhere. He sees Indian equities becoming attractive only once the earnings improve further in the future.
While the sell-off in the markets has persisted since the war in West Asia began on February 28 , the US President Donald Trump has said that the conflict might end soon, raising hopes in the markets of more certainty and positive investor sentiment in the upcoming months.