FII's were net sellers of equity for all the three trading sessions this week. And it could only get worse after S&P's outlook revision, said analysts.
The net FII outflow has been in excess of Rs.1,600 crore this week.
Market experts believe that this negative sentiment may continue to haunt the stock markets unless there is a “blockbuster” policy to act as a positive trigger.
Commenting on whether the latest move by S&P is likely to put further pressure on waning FII flows, Head of Institutional Client Group, Asit C Mehta, Mr Prakash Diwan said: “The outlook revision merely encapsulates what we already knew and just puts it on record. Issues such as GAAR, Vodafone case is not signalling an investment friendly climate since this year's budget. In such a scenario this announcement signals that those waiting to invest in Indian market will now wait longer and defer their plans rather than risk their money.”
“Our Hong Kong clients have confirmed today that there is no interest for fresh investments in India and people are looking to exit in case they manage to get good valuations. This is reflected in the net FII outflow figures for April compared to December 2011. The golden chance that India had to capitalise on foreign investments with falling growth in China is now wasted owing to opaque and retrograde taxation norms and fiscal deficit problems,” he added.
MrGautam Trivedi, Managing Director & Head of Equities, Religare Capital Markets, said: “While this is incrementally negative for the Indian rupee and Capital flows (portfolio and direct), we believe the rating remaining at investment grade contains the damage. Had a rating downgrade (to non-investment grade-Junk) happened, it would be far more negative, since it would escalate funding costs for Indian firms abroad, and preclude some FIIs to access local debt and equity markets."