By Ruchit Purohit
Foreign portfolio investors (FPIs) have pulled out more than $2 billion from Indian equities so far in January ahead of the tapering of asset purchases by the US Federal Reserve and a potential rise in interest rates. Indian benchmarks BSE Sensex and Nifty-50 corrected more than 4% in the last one week amid persistent selling by foreign investors.
On the other hand, domestic institutional investors (DIIs) continued to show faith in Indian equities, buying equities worth more than Rs 7,000 crore in January so far, showed data from exchanges.
FPIs have sold shares worth $2.2 billion or Rs 15,766 crore till date in January, data from NSDL showed. In the preceding three months, outflows from FPIs were close to $5 billion after the US central bank announced policy tightening. The possibility of rate hikes in 2022 and tapering of asset purchases will lead to overseas investors cashing out from emerging markets and investing in sovereign-backed securities in developed countries.
In the near to short term, analysts believe that FPI flows into all emerging markets will continue to be volatile till the exact timeline of the rate hike is announced by the Federal Reserve. However, after the announcement, they believe overseas investors will regain confidence and will bet on earnings growth and other economic factors over the coming months in 2022.
Speaking to FE, Neeraj Chadawar–head of quantitative strategy, Axis Securities, said: “Foreign investors typically pull out money from emerging markets during rate hikes and park their respective money in developed countries. However, once we enter the rate hike cycle, the overall growth and fiscal deficit phenomenon will play out and FPIs will regain confidence into emerging markets, preferably India.”
Experts handling funds of foreign investors also believe that, going forward, India will continue to remain the most preferred market among other emerging markets amid geopolitical concerns across other emerging markets and with China failing to hold ground.
“FPIs are unlikely to quit India on rate hikes by Fed, given the strong forex reserves, robust economic growth, and other markets like China and Russia being in trouble. Western active asset allocators will continue to stay invested and drive the share prices up in India. We are seeing interest from foreign investors like never before for investments in India,” Saurabh Mukherjea, founder, Marcellus Investment Managers, told FE.