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Rs 22,000 crore gone so far! Lok Sabha election verdict makes foreign investors nervous

Foreign investors pulled out a massive Rs 22,000 crore from Indian equities so far this month amid uncertainty surrounding the outcome of the Lok Sabha elections and outperformance of Chinese markets.

The number comes after a net outflow of over Rs 8,700 crore in the entire April on concerns over a tweak in India’s tax treaty with Mauritius and a sustained rise in US bond yields. Before that, FPIs made a net investment of Rs 35,098 crore in March and Rs 1,539 crore in February.

As clarity emerges on the election front, FPIs are likely to buy in India, since they cannot afford to miss the post-election results rally. Actually, the rally may begin even before the election results, VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.

According to data with depositories, Foreign Portfolio Investors (FPIs) witnessed a net outflow of Rs 22,047 crore from equities this month (till May 24).

“This heavy selling was triggered by the massive outperformance of Chinese stocks. The Hang Seng index, dominated by Chinese stocks (FPIs invest through the Hong Kong market since there are restrictions on investing through the Shanghai market) surged 7.66 per cent during the last month,” Vijayakumar, said.

The election-related jitters, too, might have influenced FPI selling.

With the on-going general election in the country and the uncertainty surrounding its outcome, foreign investors at this point are wary to enter the Indian equity markets before the announcement of election results, Himanshu Srivastava, Associate Director – Manager Research, Morningstar Investment Research India, said. “In recent times, the US Fed has indicated that it would not go ahead with rate cuts until inflation cools and consistently moves towards the target range. This has raised scepticism over the possibility of an early rate cut.

“It led to the appreciation in the US Dollar leading to a surge in US Treasury yields. This doesn’t augur well for the emerging markets like India, as under such scenario investments also tend to shift from riskier assets like emerging market equities to more safer asset classes such as US Dollar and US Treasuries,” he added.

On the other hand, FPIs invested Rs 2,009 crore in the debt market during the period under review.

Before this outflow, foreign investors put in Rs 13,602 crore in March, Rs 22,419 crore in February, Rs 19,836 crore in January. This inflow was driven by the upcoming inclusion of Indian government bonds in the JP Morgan Index.

Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.

Read More: Rs 22,000 crore gone so far! Lok Sabha election verdict makes foreign investors nervous

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