Concerns over slowdown in China and pending domestic reforms unnerved foreign institutional investors in August as they pulled out over Rs 17,000 crore from Indian equities during the month. The amount is higher than the outflow witnessed during the global financial crisis in October 2008.
In fact, the net outflow seen in August was the highest monthly outflow witnessed till date. While the numbers make August outflow highest in absolute terms, in percentage terms (of total FII investment) it is lower than the outflow in 2008. While the outflow in October 2008 accounted for 6.2 per cent of the total FII investment then, the outflow in August was 2.1 per cent of the aggregate FII equity investment.
“The base of FII investment has risen significantly over the last 7 years and therefore the August outflow is smaller in percentage terms,” said CJ George, MD, Geojit BNP Paribas Financial Services.
The outflow is, however, more than the net outflow of Rs 15,347 crore seen in the month of October 2008 following the subprime crisis and bankruptcy of Lehman Brothers and is also higher than the net outflow of Rs 11,026 crore in June 2013 when Ben Bernanke, the then chairman of US federal Reserve, in May announced that the US Central Bank could slow down its asset purchase programme in the coming months.
In June 2013, while the FII outflows from equities remained lower than those witnessed in August, the outflow from debt market was higher at Rs 33,134 crore.
As far as August is concerned, the biggest outflow in the month took place on Monday, last week, when FIIs pulled out a net of Rs 5,142 crore following the decline in China’s exports in July. It resulted into a 1,624-point fall (5.94 per cent) in the Sensex value on the day, making it the biggest ever fall in absolute terms. The market crash also took the Sensex fall during the month at 6.5 per cent which is the biggest monthly fall in more than four years. In November 2011 the Sensex had fallen by 8.9 per cent.
The outflow of funds also put the rupee under pressure as it breached 66.9 mark against the dollar last Monday before recovering to close at 66.81 to a dollar.
Experts say that the rise in global uncertainties and concerns over domestic reforms unnerved the investors leading to the outflow of funds from emerging economies.