Foreign investors have taken out Rs 31,430 crores in June so far

Foreign investors have withdrawn out a total of 31,430 crore from the Indian stock market this month due to aggressive rate hikes by the US Federal Reserve, higher inflation, and high valuations of equities.

According to data from depositories, net outflows from stocks by Foreign Portfolio Investors (FPIs) have reached 1.98 lakh crore so far in 2022.

According to Shrikant Chouhan, Head – Equity Research (Retail), Kotak Securities, FPI flows in emerging countries would remain turbulent in the future due to increased geopolitical risk, rising inflation, and central bank tightening, among other factors.

Foreign investors withdrew a net amount of 31.430 crore from stocks in June, according to the statistics (till 17th).

The enormous selling by foreign institutional investors (FIIs) continued in June, as they have been doing since October 2021.

Shrikant linked the recent selling to growing inflation, global central bank tightening, and higher crude oil costs.

As the US Federal Reserve was compelled to raise interest rates by 75 basis points due to persistently high inflation, worldwide investors are reacting to the increasing dangers of a global recession. It also stated that it would maintain its strong posture in order to reduce stubbornly high inflation.

“Strengthening of the dollar and rising bond yields in US are the major triggers for FPI selling. Since the Fed and other central banks like Bank of England and Swiss central bank have raised rates, there is synchronised rate hikes globally, with rising yields. Money is moving from equity to bonds,” V K Vijayakumar, Cheif Investment Strategist at Geojit Financial Services, said.

Given this uncertain environment, where bonds offer capital safety and higher rates, it is obvious that there will be a flight to safety. According to Vijay Singhania, Chairman of TradeSmart, the US markets had their greatest weekly decrease since March 2020, when the epidemic was at its apex.

Inflation has also been a source of concern on the domestic front, and the RBI has been raising rates to combat it.

“The aggressive Fed rate hike would most likely push the RBI to hike rates further over the next two or three quarters, which would have a direct bearing on GDP growth and market movement,” Himanshu Srivastava, Associate Director – Manager Research, Morningstar India, said.

Furthermore, the geopolitical tensions resulting from the war between Russia and Ukraine show no indications of abating. Crude oil prices have also remained high. Foreign investors have become risk averse as a result of these issues, and as a result, they have avoided investing in Indian equities, he noted.

FPIs withdrew a net amount of roughly 2,503 crore from the debt market during the period under review, in addition to stocks. Since February, they have been regularly removing funds from the debt side.

According to Srivastava, with interest rates in the United States rising, Indian debt may not be an attractive investment option for overseas investors.

FPIs have been selling heavily in other rising countries like as Taiwan, South Korea, the Philippines, and Thailand, in addition to India.