Foreign investors have pulled out over Rs 5,100 crore from the Indian capital market so far this month over concerns regarding "lower prospects" of economic growth as compared to other emerging markets.
The latest FPI outflow followed withdrawal of close to Rs 77,000 crore on net basis from equity and debts together in last three months (October-December). Prior to that, FPIs had invested over Rs 20,000 crore in the capital markets.
"FPI outflow for this month (January) may be attributed to relative lower prospects of growth in the Indian economy as compared to other emerging markets as well as developed countries," Bajaj Capital Group CEO and Director Anil Chopra said.
"Though the demonetisation decision is being praised by all economic experts, it is also being mentioned in the same breadth that benefits will accrue in medium to long term. In the near term, growth may be compromised due to limited liquidity in the hands of consumers and the slump in the key sectors like automobile and real estate," he added.
Net withdrawal by FPIs from equities stood at Rs 3,255 crore this month (till January 20), while they pulled out a net Rs 1,890 crore from the debt markets, translating into a total outflow of Rs 5,145 crore ($754 million), depositories' data showed.
"FPI's are pulling out money from both the debt and equity markets since the start of the year. There are three primary reasons to drive FPI capital back to the US. Trumponomics, demonetisation and expectations of GAAR have together lead to a triple blow for FPI investments in India," 5nance.com Chief Executive Dinesh Rohira said.
"We do not see a major turnaround for the next two quarters and so, the first half of 2017 will remain subdued in terms of foreign capital flow. The uncertainties are expected to settle down and reforms will start counting in for the economy in the second half of 2017, accelerating the growth momentum," he added.
Pankaj Pandey, Head of Retail Research at ICICI Direct also said he believes that FPI allocations may remain tepid in the coming months.