PNB fraud, global cues spur Rs 100 billion FPI sell-off in February

Foreign investors have pulled out nearly Rs 100 billion ($1.5 billion) from the Indian stock market so far this month, primarily due to Punjab National Bank (PNB) fraud jitters, coupled with global cues. This is against the total inflow of over Rs 137.8 billion by foreign portfolio investors (FPIs) in January, latest data with the depositories show. Geojit Financial Services Research head Vinod Nair said weak domestic cues impacted investor sentiment. Beside, renewed concern that a rebound in global crude oil prices will have an adverse impact on the fiscal deficit also kept market participants cautious, he added. The state-run PNB on February 14 disclosed a Rs 114-billion ($1.77 billion) worth of fraud involving jewellers Nirav Modi and Mehul Choksi and their group firms. According to depositories data, FPIs withdrew a net amount of Rs 98.9 billion ($1.5 billion) from equities during February 1 to February 23. However, they put in about Rs 15 billion in the debt markets during the period under review. “In January, the US unemployment rate stood at a 17-year low of 4.1 per cent. In addition to this, there is a good possibility of an increase in the US Federal Reserve rate to counter the rise in inflation.

Overall, we witnessed a sell-off globally. The FPI pull-out from Indian markets is most likely a result of this,” said Harsh Jain, co-founder and COO of online investment platform Groww. Echoing similar views, Nalini Jindal, chief investment advisor at Intellistocks, said US inflation is hitting several years low, raising possibility of a hike in the Fed rate, and this has resulted in a caution among FPIs. “The recent Budget announcement to tax long-term capital gains and bringing FPIs into local compliance are also some reasons as FPIs may want to book some profits to enjoy the benefits of grandfathering. This, however, could be a short-term scenario, as India is one of the much sought after destinations for investments by FPIs,” she added. Explaining the reason for inflow in the debt markets, Jain said: “India’s 10-year bond yield crossed 7.5 per cent, the first time since July 2016. Similar is the case with the 10-year treasury yield. The inflow in debt market is expected when the arbitrage between the selling debt and buying equity squeezes.”