What Cause FPI Exit?, Rs 44,396 Crore Pulled Out Till 17 January- Details

Foreign investors have withdrawn Rs 44,396 crore from Indian equities this month, driven by the strong dollar, rising US bond yields, and concerns over a weak earnings season. This sharp outflow comes after an investment of Rs 15,446 crore in December, highlighting a significant shift in investor sentiment.

The large pullout by foreign investors has increased volatility in Indian stock markets. Key indices have fallen, notably in areas with significant foreign investment. This trend highlights the Indian markets' vulnerability to global financial developments and investor mood. 

Reasons for Withdrawal

The primary reasons for the pullout include the strengthening dollar and rising US bond yields. With the dollar index above 109 and the 10-year US bond yield exceeding 4.6%, foreign investors are reducing their exposure to emerging markets like India, which is currently seen as an expensive market.

Impact of Rupee Depreciation

The continued depreciation of the Indian rupee is adding pressure on foreign investors. According to Himanshu Srivastava from Morningstar Investment Advisers India, this currency weakness, combined with high valuations of Indian equities and expectations of a weak earnings season, is making investors cautious.

FPI Selling Trends

Data shows that Foreign Portfolio Investors (FPIs) have sold shares worth Rs 44,396 crore by 17 January, with selling occurring on every day except January 2. This contrasts sharply with the net inflow of Rs 1.71 trillion in 2023, which was driven by optimism about India's strong economic fundamentals.

"The principal reasons for the sustained FPIs selling are the strength of the dollar and the rising bond yields in the US. With the dollar index above 109 and the 10-year US bond yield above 4.6 per cent, it is logical for FPIs to sell in emerging markets, particularly in the most expensive emerging market India," V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.
 

Comparison with Previous Years

The current outflow is notable compared to the Rs 1.21 trillion net outflow in 2022, which was influenced by aggressive rate hikes by global central banks. This shift in investment patterns underscores the impact of global economic conditions on foreign investment in Indian markets.