The combined outflow of foreign institutional investor money in June has been $1.45 (Rs 8,226 crore) billion reversing strong inflow of $7.7 billion in April and May. The outflow is a combined impact of expectation that easy money sloshing in the global markets till now will soon dry up.
Fed chairman Ben Bernanke has announced that US economy may slow down quantitative easing. This will make the costs of raising money for investments costlier. The result is dollar-based instruments will become more attractive cutting back on the global purse available for emerging markets like India. This has already begun to happen with the returns on rupee-based debt instruments beginning to turn adverse. So while the inflow into Indian equities for the six trading sessions in June stood flat at $132 million,the debt market has witnessed a massive outflow of foreign money at $1.58 billion (Rs 8,978 crore).
FII outflow from debt over the last few days has partly been on account of profit booking. It is also on account of concerns over currency since the emerging market currencies including INR have significantly under-performed in the recent weeks, said Rahul Goswami,CIO,fixed income at ICICI Prudential AMC.
June will be the first month since April 2012 when there has been a net outflow of FII funds from domestic debt. On the contrary,the net inflow in domestic debt by FIIs between Jan 2013 and May 2013 stood at Rs 24,046 crore. Even the inflow into equities for the first five months of the calendar stood at Rs 83,204 crore.