Indian equity markets have seen $960 million worth of selling by foreign portfolio investors (FPIs) in June. This is the worst monthly FPI performance since August 2013 when the markets witnessed an outflow of $947 million triggered by depreciation of the rupee against the US dollar. Foreign inflows, in terms of half-yearly performance was the worst in four years. During January-June 2015, the total FPI buying stood at $6.2 billion against $9. 9 billion for the same period in 2014. FPIs bought equities worth $1.3 billion and $8.5 billion in the first six-months of 2013 and 2012, in that order.
Not surprisingly, Indian benchmarks have lagged their counterparts in the emerging market universe this year, with the Sensex yielding just about 1% in 2015 so far compared to some of the bigger markets like China and South Korea. In the month of June, Sensex has lost a moderate 0.2%.
Triggered by possible crisis in euro zone due to an impending default by Greece, FPIs sold shares worth nearly $200 million in the last two days alone.
“One of the key factors driving the outflows is global uncertainty and the possibility of a Greek default. There is also a realignment of cash flows going on in the emerging markets especially India and China,” said Vaibhav Sanghvi of Ambit Investment Advisors.
However, experts say despite near-term volatility, Indian market is unlikely to bear significant impact of a possible Greece default.
“India is likely to be less volatile than its peers as we will be the least impacted by events unfolding in Greece and the EU. Since this has been well known for some time, it is unlikely to lead to a deep correction as seen in the 2008 global crisis,”said Nilesh Shah of Kotak AMC.
FPIs have been consistently liquidating their ownership of Indian shares this month, amidst concerns of a possible inclusion of China A-shares in the MSCI Emerging market index at the beginning of the month. Around mid-June, the selling of Indian equities intensified as traders contemplated the Federal Reserve’s stance on the timing of hiking the benchmark interest rates.
Domestic factors including possibility of weak markets, dip in corporate earnings have also impacted cash flows.
But near-term volatility experts say, remains very much on the cards. Deutsche Bank in a recent research note highlighted the possibility of higher volatility in the next few months as “investors continue to await tangible data on macroeconomic/corporate recovery.” The foreign brokerage house also said that the market direction will also be determined by the incoming macro data from the US.