FPIs pull out ₹35,506 crore from Indian markets in February

Continuing the selling streak for the fifth consecutive month, foreign portfolio investors (FPIs) pulled out as much as ₹35,506 crore from Indian markets in February.

FPIs have been pulling funds out of the Indian markets since October 2021 and the quantum of outflow in February 2022 is highest since March 2020 when overseas investors had pulled out ₹1,18,203 crore.

“The pace of outflows increased sharply after US Fed’s decision to unwind stimulus measure and increase interest rates sooner than later. In addition to that, brewing tension between Russia and Ukraine, and with fears of war between the two countries looming large, foreign investors adopted a cautious approach and started to stay away from investing in emerging markets like India,” Himanshu Srivastava, associate director (manager research) of Morningstar India, said.

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Now, with Russia invading Ukraine, geopolitical tension of such a magnitude doesn’t augur well for emerging markets like India with respect to foreign flows as such markets are considered to be riskier investment destinations and more prone to geopolitical turmoil compared to developed markets, he added.

During February 1-25, FPIs pulled out ₹31,158 crore from equities, ₹4,467 crore from the debt segment, according to depositories’ data.

However, they pumped in ₹120 crore into hybrid instruments during the same time.

Geojit Financial Services Chief Investment Strategist V K Vijayakumar said it is difficult to anticipate how the Ukraine crisis will unfold. If the conflict lingers for some time, the consequences for the global economy would be severe.

“Crude oil at $104 a barrel would be bad for Indian’s macros. Trade deficit will widen, the rupee would depreciate further, and inflation will rise above RBI’s comfort levels forcing the central bank to abandon the accommodative monetary stance. This can impact India’s growth recovery,” he said.