While prospects of a deficient monsoon may be emerging as first major test for Narendra Modi-led NDA government that had a sweet run primarily driven by softening in commodity prices, the month of May also saw the foreign institutional investors—the largest participant in stock market rally since Modi was anointed as BJP’s prime ministerial candidate — emerge as net sellers in the Indian capital markets (debt and equity combined) for the first time in 21 months.
In May 2015, the combined net FII outflow from debt and equity market amounted to Rs 14,262 crore. It is the first time since August 2013 (net outflow of Rs 15,696 crore) that the aggregate net flow in a month has been negative. However, in isolation, there have been instances of net outflows from domestic equities (in October 2014) and debt market (on four occasions) over the 20-month period.
- Global concerns spook investors: At Rs. 14,171 cr, FPI outflow highest since 2008 crisis
- FIIs exit, retail MF inflow on the rise
- Growing retail inflow makes up for FII exit, provides depth to markets
- FIIs pour R1-lakh cr since Modi declared PM candidate
- FIIs pull out Rs 4,500 cr from debt mkt in first week of July
- FIIs' exodus hits Indian stock markets
The strong inflow of FII money and rally in stock markets closely coincides with the anointment of Narendra Modi as the BJP’s prime ministerial candidate for the 2014 Lok Sabha polls in September 2013.
In the 20-month period between September 2013 and April 2015, while the aggregate net inflow into the Indian capital markets stood at Rs 3,84,233 crore (over $61 billion) the inflows into equity and debt markets separately amounted to Rs 1,98,210 crore (over $31 billion) and Rs 1,86,022 crore (over $30 billion) respectively.
With support from strong FII inflow, between September 2013 and April 2015, the benchmark Sensex at the BSE too jumped over 45 per cent.
May 2015, however, turned into an aberration and both the equities and debt markets witnessed net FII outflow amounting to Rs 5,768 crore and Rs 8,504 crore.
While volatility in global markets and a rise in global crude prices played a role in decline in investor sentiment, the government’s move to issue tax notices to FIIs for capital gains made over the past years fuelled FII’s concerns and they rushed to withdraw money from the Indian markets.
Other than this, there has been disquiet over growth rate of Indian economy and the impact of deficient monsoon on it.
On Tuesday, the Reserve Bank of India Governor Raghuram G Rajan also highlighted RBI’s concern over inflation, volatile crude prices and other global factors that may have an impact on inflation. He also hinted at a possible pause over further cuts in repo rate.
While foreign institutional investments have already been trading weak in the Indian equities, fresh concerns over monsoon has pulled the markets down over the last few trading sessions. Over the last four trading sessions the Sensex fell 1080 points or 3.9 per cent.