The current calendar year has been the worst, till date, for Indian stock markets in seven years in terms of flows from foreign investors who are often considered as the prime drivers of any liquidity-driven equity rally.
Data showed that foreign portfolio investors (FPIs) had put in only ₹8,460 crore this year till date in equities, the lowest in the January-April period since 2011 when overseas investors were net buyers at only ₹4,712 crore.
Since then, FPIs, on an average, had invested ₹40,000 crore each year between 2012-2017.
Incidentally, in the first four months of 2013, FPIs were net buyers at more than ₹60,000 crore.
According to market participants, the sluggish flows this year can be attributed to the overall bearish sentiments towards emerging markets with India being no exception. “The overall emerging market pack is slightly out of favour due to a combination of geopolitical and economic factors and India cannot be an exception,” said U.R. Bhat, managing director, Dalton Capital Advisors India.
Trade war
“There are tensions in West Asia, potential trade war concerns are escalating between the U.S. and China, oil prices are hovering around $75 levels plus dollar is strengthening,” explained Mr. Bhat. “So, the uncertainties are at dramatically high levels and it is impacting foreign flows into emerging markets. Investors believe they can make more money investing in the U.S. as the interest rate there is also rising.” In the current calendar year, FPIs were net buyers at ₹13,781 crore in January but turned sellers in February at ₹11,423 crore.
Thereafter, March saw a reversal with net buying of ₹11,654 crore. In April [till 27], FPIs were net sellers at ₹5,552 crore.
According to EPFR Global, a foreign fund tracker, India equity funds saw more money flow out despite a growth rate that was higher than that of China.
Government data showed that the Indian economy grew 7.2% in the quarter ended December 31 while the Chinese economy expanded by 6.8%.
“The impact of higher oil prices on the country’s current account deficit and inflation rate, the Indian banking system’s struggles with demonetisation, scandals and bad loans and a government looking ahead to next year’s general election have all taken a toll on investor sentiment,” said EPFR Global in its latest report.
