FPIs continue exodus from equity market for 9th month, withdraw `50,203 crore in June

New Delhi: Continuing their massive selling spree for the ninth consecutive month, foreign investors dumped Indian shares worth Rs 50,203 crore in June — the highest net outflow in over two years — amid aggressive rate hike by the US Federal Reserve, elevated inflation and relatively higher valuation of domestic equities.

Foreign portfolio investors (FPIs) have now pulled out around Rs 2.2 lakh crore from domestic equities in the first six months of 2022 — the highest-ever net withdrawal by them. Before that, FPIs withdrew Rs 52,987 crore in the entire 2008, data with depositories showed.

The massive capital outflow has also contributed to the depreciation in the rupee, which breached the 79-mark against the US dollar for the first time last week.

Analysts warn that FPI flows are likely to remain volatile in the near term. "Going ahead, we believe inflation would be the key driver to monitor to decide the trend, coupled with narrowing yield gap between bond and equities...," said Shrikant Chouhan, Head - Equity Research (Retail), Kotak Securities.

According to the data, FPIs withdrew a net sum of Rs 50,203 crore from equities in June. This was the highest net outflow since March 2020, when they had pulled out Rs 61,973 crore.

FPIs have been deserting Indian equities since October 2021. "Aggressive rate hike by US Fed, high inflation as well as relatively higher valuation of Indian stocks continued to keep foreign investors at bay through the month of June," said Himanshu Srivastava, Associate Director - Manager Research, Morningstar India.

According to him, the broader sentiment remained negative towards India, which prompted foreign investors to carry forward their cautious stance on domestic equities. Compared to other emerging markets, India is among the worst hit with respect to net outflows.

"The relentless FPI selling has to seen in the context of steadily rising dollar and bond yields in US. FPIs are selling more in countries with rising current account deficits (CAD) like India because the currencies of such countries are vulnerable to further depreciation," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.