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COVID-19 infects markets: FPIs withdraw `1 lakh crore from equity, debt in March

Foreign portfolio investors (FPIs) have pulled out close to Rs 1,00,000 crore (US $13 billion) from India in March, as the coronavirus pandemic and the carnage in the financial markets have forced FPIs to derisk from emerging market assets across the world. This is the largest monthly outflow in the history of the Indian markets, […]

Written by George Mathew | Mumbai | Published: March 22, 2020 5:16:20 am
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Foreign portfolio investors (FPIs) have pulled out close to Rs 1,00,000 crore (US $13 billion) from India in March, as the coronavirus pandemic and the carnage in the financial markets have forced FPIs to derisk from emerging market assets across the world. This is the largest monthly outflow in the history of the Indian markets, which also led to the rupee falling below the 75-level against the US dollar.

Of this, Rs 49,507 crore was withdrawn from the equity market by FPIs who were big sellers in large-cap stocks in the last two weeks. FPIs withdrew another Rs 49,228 crore from the debt market, according to the data from the National Securities Depository Ltd (NSDL). However, total withdrawals amounted to Rs 95,485 crore as Rs 3,256 crore has been invested in debt-VRR by FPIs in March.

When the global financial crisis rocked the markets in 2008, total equity outflows during the entire year amounted to only Rs 52,987 crore. However, India received FPI inflows of Rs 83,423 crore into equity in calendar year 2009 and Rs 1,33,266 crore in 2010. In 2019, FPI equity inflows were at Rs 1,01,122 crore.

Sustained selling by foreign investors has contributed to the sharp sell-off of 21.88 per cent, or 8,382 points, to 29,915.96 in the benchmark Sensex in March. Even investors in most markets sold off bonds of all grades to accumulate cash, but most assets saw historic exit activity as investors across regions braced for an economic slowdown. “Coronavirus fear is intensifying worldwide and fresh travel bans seem to hurt the global economic sentiment. Global markets are in meltdown as the pandemic spreads, with trillions in shareholder value erased and even safe assets such as gold have been sold to cover losses,” IFA Global said in a report.

Bank of America says, “The Crash of 2020” wiped out as much as $24 trillion from the global stock market and roiled nearly all financial assets as the coronavirus pummelled economies around the world.” On March 17, the Philippines halted stock, bond and currency trading until further notice, becoming the first country to shut financial markets in response to the widening coronavirus pandemic. This raised fears that other exchanges following the same path soon. Though the Federal Reserve cut US interest rates to zero before financial markets opened last Sunday and joined forces with other central banks in a bid to prevent a severe economic downturn caused by the coronavirus pandemic, FPI selling continued in the Indian markets. In a normal situation, a sharp cut of 100 bps by US Fed would have led to a spurt in foreign investment in emerging markets like India, said an analyst,

The spectre of a fall in global growth and the decline in crude oil prices will impact FPI inflows as investors expect emerging market economies to take a beating, analysts said. “We cut our FY2021 FPI inflow forecast by $5 billion. A drop in oil prices on risk off leads to FPI outflows. We cut our real GVA growth forecast by 10 bps to 4.8 per cent in FY20 and 20 bps to 5.4 per cent with our global economics team slashing 2020 global growth by 60 bps to 2.2 per cent,” said a Bank of America Merrill Lynch report.

In the case of a global recession pulling world GDP growth to 1.4 per cent, India’s FY21 growth will likely drop to 4.4 per cent. “Our BofA India Activity Indicator is certainly pointing to a long and deep bottom,” the report said.

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