Foreign investors remained in exit mode as they have pulled out nearly Rs 5,500 crore from stock markets so far this month due to geopolitical concerns and a tendency to take profit.
The net outflow by foreign portfolio investors (FPIs) follows withdrawal of Rs 12,770 crore from equities in August. Prior to that, they had pumped in over Rs 62,000 crore in the past six months.
According to the latest depository data, the FPIs withdrew a net Rs 5,492 crore ($855 million) during September 1-22. However, they pumped in Rs 4,430 crore in debt markets during this period.
After taking into the account the latest outflow, the total investment by the FPIs in equity markets stood at Rs 40,253 crore (about $6 billion) this year.
"The first and foremost reason for the FPIs pulling out money is the risk aversion -- rising geopolitical tension mainly due to stiff stand between the US and North Korea -- which has triggered sell-off across global markets. Emerging markets like India is normally worst hit in such conditions, given they are considered more prone to risks," said Himanshu Srivastava, Senior Analyst, manager research, Morningstar.
He further said another reason could be profit booking as Indian stock markets have done significantly better over the last few years. This coupled with rupee appreciation has given overseas investors a good profit booking opportunity.
"We are yet to see the kind of growth that was expected in the domestic economy. India is one of the many investment destinations for foreign investors and they continue to compare it to other countries with regard to risk reward profile. India has to perform significantly better to continue getting its share of foreign money," Srivastava added.
However, the debt markets retained its allure among the FPIs as a strengthening currency and high yields in the corporate bond markets added to the attraction.