Foreign portfolio investors (FPI) have turned net sellers in the capital markets in October so far, reversing the trend of net investments in the previous two months, due to depreciation in the rupee and global factors, experts said.
According to the depositories' data, FPIs have pulled out ₹1,472 crore from capital markets on a net basis in the current month so far.
A trend reversal was witnessed in the debt segment in October from the big buying in the previous two months when FPIs had invested ₹13,363 crore in September and ₹14,376.2 crore in August. In October so far, they pulled out ₹1,698 crore.
"This trend reversal in debt investment is due to the INR depreciation in October," said V.K. Vijayakumar, chief investment strategist at Geojit Financial Services.
In equities, FPIs invested ₹226 crore on a net basis.
"FPIs who were sellers in banking stocks in the first half of September turned buyers in the second half. But they were sellers in software services throughout September. The strong performance by IT companies like Wipro, Infosys and Mindtree is likely to attract more flows into the segment, going forward," he added.
Himanshu Srivastava, associate director - manager research, Morningstar India said that as markets touched all-time highs and valuations soar, FPI would have preferred to stay on the sidelines, adopt a wait and watch approach and continue to book profits along the way.
"There continues to be a concern among FPIs with respect to the tapering of easy liquidity after the US Fed hinted of rate hike sooner than expected. Concerns such as rising oil prices and US bond yields and challenges to the Chinese economy have also been on their radar, thus keeping them on tenterhook and preventing them from substantially investing in Indian markets," he added.
On the future of FPI flows, Shrikant Chouhan, head - equity research (retail), Kotak Securities said that Brent crude oil prices are trading at elevated levels and a sharp increase in energy prices can be a key headwind for the equity markets.
In addition, any increase in the rate by the U.S. Fed Reserve in the near future, would also act a key headwind for overall flow in the emerging markets. Hence, FPI flows are expected to remain volatile in the emerging markets.
