Foreign investors pulled out over Rs 11,000 crore from domestic equity market in September due to geo-political concerns, slowdown in corporate earnings and higher valuations.
The net outflow by foreign portfolio investors (FPIs) follows withdrawal of Rs 12,770 crore from equities in August. Prior to that, they had pumped in over Rs 62,000 crore in the past six months (February to July).
According to the latest depository data, FPIs withdrew Rs 11,392 crore ($1.75 billion) in September. However, they pumped in Rs 4,430 crore in debt markets during this period.
After taking into account the latest outflow, the total investment by FPIs in equity markets stood at Rs 34,350 crore (about $5.2 billion) so far this year.
“Slowing growth in corporate earnings coupled with high valuations and strength in the US dollar leading to weakness in the rupee might have led to selling by FPIs,” Bajaj Capital Senior V-P and Head Investment Analytics Alok Aggarwala said.
Besides, India’s GDP growth slowed to 5.7 per cent in the first quarter of 2017-18 amid concerns over disruption in business activity due to issues in GST implementation.
Further, corporate earnings registered a negative growth in the same quarter, pushing back recovery and heightening concerns on expensive valuation.
Dinesh Rohira, CEO at 5nance.com, said FPIs have been been looking to rebalance their portfolios in search of better returns, hence shifting their money from the over-valued Indian stocks to some of the other under-valued emerging markets like Hong Kong.
The other reason is geo-political risks and not-so-good second quarter earnings expectations have led FPIs to recalibrate asset allocation from equities to Indian debt to weather the rough phase in the economy.
BNP Paribas Mutual Fund Chief Investment Officer Ritesh Jain said FPIs are overweight on Indian stocks and so, they are looking at other emerging markets like China.
However, FPIs have been pouring money into the debt market in search of better yields and falling interest rate expectations on the back of high inflation and reduced rates, Rohira said.