Foreign portfolio investors (FPIs) have sold more stocks since October 2021 than they did during the 2008 financial crisis at an aggregate level. Between October and now, Bloomberg data show, overseas investors have dumped Indian stocks worth $19.8 billion, compared with $14.6-billion outflows between January 2008 to March 2009. The benchmark Sensex had come off 61% during the same period.
The war between Russia and Ukraine and higher oil prices have prompted foreign investors to take risk off the table as the country is heavily dependent on imports for meeting its oil requirements. “The sharp jump in crude oil prices comes on top of already accelerating imports for India and will drive a jump in current account deficit,” Jefferies wrote in an investor note. Rupee, which plunged to record lows on Monday, has depreciated 2.6% against the greenback so far in 2022. The local currency has fared badly in Asia after South Korean won, which is down by 3.1% during the same period.
Financials and technology stocks, where FPIs park almost half of their money, witnessed massive selling during the period, whereas companies in staples were the most sought after despite higher valuations and margin pressure due to rising input costs. Market participants are of the view that FPIs selling is unlikely to subside until the tension between Russia and Ukraine gets resolved and commodity prices begin to stabilise.
According to Bloomberg, in past instances of major FPI exodus from India, selling generally eased when peak-to-trough outflows approached $8-$10 billion, with the sole exception of the 2008 crisis. The current bout of selling has now surpassed that of 2008.
Among major emerging markets, Taiwan witnessed highest selling by FPIs so far in 2022 totalling $15.7 billion, followed by India, which saw an outflow of $15 billion.
In contrast, Brazil attracted more money among the region with an inflow of $13.1 billion as it bets on high exposure to the commodity upcycle and cheap valuations.
Despite a 10.2% fall from its October highs, the Nifty50 is currently trading at 18.9 times of its one-year forward earnings. In contrast, Brazilian Bovespa commands 7.7x, whereas Jakarta Composite and Stock Exchange of Thai trade at 15.8x and 16.9x, respectively.