Wednesday’s crash appears largely driven by foreign portfolio investors. These investors have turned averse to Indian stocks since April 15.

On an average, they have net sold stocks worth $129 million daily since then. The exception was April 22, when Daiichi’s stake sale in Sun Pharma resulted in net FPI purchase of $2.6 billion. If this transaction is not taken into account, the net sales by FPIs between April 15 and May 5, would be $1.8 billion.

This is in contrast to the behaviour since the beginning of this calendar. Average daily purchase of stocks by FPIs between January 1 and April 14 was $86 million.

Belied hopes?

So, why did the sentiment change since the middle of last month? One reason could be plain profit-booking. It may be recalled that the Indian market was among the best performers in calendar 2014 with the Sensex gaining 27 per cent. The euphoria last year was largely built on expectations that the new Prime Minister Narendra Modi would push through policy reforms. With the Government not seen to be living up to the high hopes, FPIs could be taking some money off the table.

MAT haunts

Two, it was around April 15 that the demand for minimum alternate tax (MAT) from FPIs became a full-blown issue with the Finance Minister making a statement that the government intends to press ahead with the demand. The Finance Minister had stated in the Union Budget that capital gains made by foreign investors will not be subject to MAT from this fiscal. But the FPIs have been glum that this concession has not been extended to past transactions too.

Three, the Indian rupee has also taken a hit in this period; not surprising since FPI flows have a strong correlation with the rupee’s moves. The currency fell from 62.3 to 63.7 against the dollar in this period. This poor show could have accelerated FPI outflows, as a weak rupee cuts into the returns of foreign investors.

The increase in crude oil prices over the past few weeks and the flailing corporate earnings in the March quarter could be other reasons why FPIs could be voting with their feet.

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