Overseas investors have pulled out a staggering Rs 29,191 crore (over $5 billion) from the Indian debt and equities in less than a month due to weakness in the rupee.

During 3-21 June, foreign institutional investors (FIIs) were gross buyers of debt securities worth Rs 8,385 crore, while they sold bonds amounting to Rs 32,549 crore translating to a net outflow of Rs 24,163 crore ($ 4.2 billion), as per Securities and Exchange Board of India (SEBI) data.

Moreover, FIIs have taken away Rs 5,028 crore ($848 million) from the equity market in June so far. However, the total foreign investment in the country’s equity market is still Rs 78,176 crore ($14.5 billion) so far this year.

Market experts attributed the huge 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 59.94 (intra-day) against the dollar on June 20. The rupee, on Friday, closed at 59.27 against dollar. Since April 30, 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.

FIIs’ net investments had reached two-year highs during 2012, attracting net inflow of around Rs 35,000 crore in the Indian debt market.

Besides, steps taken by the government to ease FII investment rules by doing away with sub-limits and reducing the withholding tax on debt investments have also helped the segment. However, the recent withdrawal has hit debt markets hard. So far this year, foreign investors have pulled out net Rs 116 crore from the debt market.

As on June 21, the number of registered FIIs in the country stood at 1,761 and the total number of sub-accounts at 6,399 during the same period.

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