The link between rupee depreciation and foreign portfolio flows into the equity market is well known. But the pullout by foreign investors has been more severe this calendar than in the previous ones.

In 2013, when the rupee touched a low of 68.8 to a dollar, the net inflow into equities fell 12 per cent compared with the previous year. But, now, when the rupee is once again inching down to new lows, the inflows have fallen by 83.5 per cent.

Foreign portfolio investors have been jittery ahead of the impending interest rate hike by the US Federal Reserve. This is making them pull money out of all emerging markets, including India.

And, no solution to the emerging market problems is visible on the horizon. On the other hand, the US economy seems to be on a recovery mode, which is attracting domestic money back.

Global woes

“The intensity of global problems is high this time. Commodity prices, including of crude oil, have crashed and there is contraction of many emerging economies,” said G Chokkalingam, Founder, Equinomics Research & Advisory.

Disappointing corporate performance in the September quarter and the uncertainty over key economic Bills are the other major reasons for FPIs heading for the exit.

Sandip Sabharwal, an independent analyst, believes that the Indian equity market is facing redemption pressures from sovereign funds of oil rich countries which are selling out to make up for the deficit created by the low oil price.

Foreign institutional investors have, therefore, panicked more this time and flows into emerging markets, including India, have dipped sharply.

FPIs net invested only ₹1,5974 crore in calendar 2015 to date, down 83.5 per cent from 2014 levels.

There are domestic worries like slow pace of reforms, bad monsoons and no visibility on interest rate cuts but they look small compared to the global woes, said analysts.

In comparison, when the rupee had touched an all-time low of 68.8 against the dollar on August 28, 2013, FPIs had stayed invested in Indian equity even as they exited debt instruments.

India may have appeared attractive as an investment destination in the run up to the General Elections then.

Hence, S&P BSE Sensex and CNX Nifty ended 2013 positively with gains of 9 per cent and 7 per cent, respectively, despite a 24-25 per cent rally seen in 2012.

In calendar 2015 to date, the Sensex and Nifty are down 9 per cent and 8 per cent, respectively.

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