Overseas investors pulled out more than Rs 4,500 crore (about $754 million) from the Indian debt market in the first week of this month amid concerns over depreciating rupee.
During July 2-5, Foreign Institutional Investors (FIIs) were gross buyers of debt securities worth Rs 2,931 crore, while they sold bonds amounting to Rs 7,432 crore translating into a net outflow of Rs 4,501 crore, as per data available with market regulator SEBI.
The latest outflow comes after a net pull-out of Rs 33,135 crore ($5.7 billion) from the debt securities in June. FIIs had turned net sellers of debt securities here for the first time in 13 months.
However, foreign investors have pumped in a net amount of Rs 1,040 crore ($176 million) in the equity market during the week.
Market experts attributed the weekly sell-off to weakness in Indian currency, which is instrumental in FIIs exiting the debt markets as rising cost of hedging a volatile rupee hurts the yield differential the FIIs work with.
Of late, the Indian currency has been consistently hitting new record lows and it slumped to a life-time low of 60.76 (intra-day) against the dollar on June 26. Since April 30, the rupee has depreciated by over 10 per cent.
Global markets have seen turmoil after Federal Reserve said it is likely to taper $85 billion-a-month bond purchase from later this year and end it ultimately next year if US economic recovery is up to its expectations.
Fed’s ultra-loose monetary policy drove asset prices, including those in emerging markets, and fears are that inflows may be hit if US monetary stimulus comes to an end.
FIIs had been aggressive buyers of bonds since the beginning of 2013 on account of higher yields offered by the government and corporate debt. Debt market had witnessed a net inflow of close to Rs 25,000 crore in January-May this year. However, the recent withdrawal has hit debt markets hard.
So far this year, foreign investors have pulled out a net Rs 13,500 crore ($1.95 billion)from the debt market.
As on July 5, the number of registered FIIs in the country stood at 1,755 and the total number of sub-accounts at 6,401 during the same period.