FPIs selling in Indian market slows, ₹4,418 cr outflow so far in July. Rupee to play a big role
Premium- In July, so far, FPIs have pulled out ₹4,418 crore from the Indian market. The selloff is slower compared to the previous week.
Foreign portfolio investors (FPIs) funds outflow in the Indian market is slowing down. The new trend from early July shows that there is selling exhaustion from overseas investors. So far this year, FPIs have only been net sellers in the market due to the strong dollar, higher commodity prices, inflationary pressures, geopolitical tension, and rising interest rates. But the latest recovery in domestic equities and breather from concerns of macroeconomic risks signals that FPIs selling practice might be at the peak of exit with bullish tones coming in. However, a lot will depend on the way the rupee performs ahead. FPI selling is expected to come down if the Indian rupee consolidates in the current level.
In July, so far, FPIs have pulled out ₹4,418 crore from the Indian market. The selloff is slower compared to the previous week. Of the total, the equity market witnessed the most outflow to the tune of ₹4,096 crore this month, while ₹844 crore was pulled out from the debt-VRR market and merely ₹7 crore is removed from the hybrid market. The debt market witnessed buying sentiment with an inflow of ₹529 crore so far in the month.
Dr VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services said, "Early trends in FPI activity in July indicate declining selling by FIIs. For the first time in several weeks, FPIs bought equity worth ₹2150 cr on 6th July. There are signs of selling exhaustion by FPIs."
From April to June 2022 quarter, FPIs have removed a hefty ₹1,10,628 crore from the Indian market. June is the worst-hit month this year with an outflow of ₹51,422 crore alone, while the outflow stood at ₹36,518 crore and ₹22,688 crore in May and April respectively.
In the first six months of 2022, FPIs pulled out ₹2,27,290 crore from the market.
"The major factors driving FPI selling during the last 2 to 3 months have been the steady appreciation of the dollar and rising interest rates in US," Vijayakumar added.
So far, this year, the overall outflow in the Indian market is at ₹2,31,708 crore. Equities took the most beating with money going out to the tune of ₹2,21,454 crore - accounting for 95.57% of the total outflow from the market. FPIs only removed ₹14,341 crore from the debt market. On the other hand, they were net buyers in the debt-VRR and hybrid market with an inflow of ₹2,240 crore and ₹1,847 crore.
Going forward, FPIs selling pressure is expected to calm down if the rupee consolidates in the current market level. However, the widening of the trade deficit plays a spoilsport for the local currency.
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“If the rupee consolidates at the current level, which in turn depends mainly on the price of crude, FPI selling will come down. But India's high trade deficit at $ 25 billion is an area of concern. If the trade deficit continues to remain high, further depreciation of the rupee above ₹80 to the dollar is likely in the next 2 months. FPIs are likely to wait and watch for rupee movements before buying big in India," Vijayakumar said.