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Shares worth $2.6 bn sold so far in April: High commodity prices, markets valuation spook FPIs

In contrast, Brazil, another emerging market (EM), has seen positive flows during the last three months.

Brazil, on the other hand, has seen inflows of $17.6 billion since October 2021, while Thailand received $4.4 billion during the same period, data from Bloomberg showed.
Since October till now, FPIs have offloaded Indian equities worth $20.6 billion, out of which outflows more than $15 billion were seen in the first three months of 2022 itself, data showed. Brazil, on the other hand, has seen inflows of $17.6 billion since October 2021, while Thailand received $4.4 billion during the same period, data from Bloomberg showed.

Foreign portfolio investors (FPIs) continued to offload shares for the seventh straight month since October. Overseas investors have sold shares amounting to $2.6 billion so far in April. A sharp rise in commodity prices due to the Russia-Ukraine war, coupled with the rising interest rate environment, and higher valuations of the Indian markets have made foreign investors jittery over the last few months, analysts said. In contrast, Brazil, another emerging market (EM), has seen positive flows during the last three months.

Since October till now, FPIs have offloaded Indian equities worth $20.6 billion, out of which outflows more than $15 billion were seen in the first three months of 2022 itself, data showed. Brazil, on the other hand, has seen inflows of $17.6 billion since October 2021, while Thailand received $4.4 billion during the same period, data from Bloomberg showed.

Speaking to FE, Vivek Sharma, head – international clients group, Edelweiss Wealth Management, said: “Fed officials have signalled their willingness to raise interest rates higher and faster to combat record inflation levels in decades. Rising yields have also tended to have negative effect on foreign flows into Indian markets. We also have the war in Ukraine dragging on for two months now. This has dampened investors’ risk appetite. Furthermore, oil prices remain high and as a net importer, elevated crude oil prices tend to impact the Indian economy negatively.” He added that EMs like Brazil may experience transitory spikes in foreign inflows given that they are the world’s major producers and exporters of energy and other commodities.

Premium valuations of the Indian equity markets have also directed foreign investors to re-balance their allocation to markets that currently look undervalued. According to a recent note from Jefferies, at 19.3x, the Nifty now trades at a 16% premium to the 10-year average, and nearly 70% premium to the EM benchmark. Analysts at Jefferies said FPIs have also reduced India weightage by 500-100 bps in the last three-six months.

gIndia positioning has come down to neutral/slight overweight level, implying 50-100 basis points (bps) weight reduction on India over the past 3-6 months. Premium valuation still remains the key discomfort, along with higher oil, although there’s buy-in on the structural India growth story,” Jefferies said.

However, the number of new FPIs getting created remains strong and continues to increase, reflecting a structural long-term interest from global investors in India, said Sharma of Edelweiss.

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