May 4, 2020 1:17:21 am
In a big relief to the capital markets, even as the coronavirus pandemic continues to hit economies and markets worldwide, foreign portfolio investors (FPIs) significantly reduced the pace of outflows in April, after a record net outflow of Rs 1,18,203 crore in March 2020. In April, FPIs pulled out a net of Rs 14,858 crore from equity and debt markets.
According to data sourced from CDSL, FPIs sold a net of Rs 6,883 crore from the equities market in April and sold net holdings worth Rs 12,551 crore from the debt market.
They were, however, net positive investors in debt voluntary retention route (VRR) scheme that allows FPIs to participate in repos and also invest in exchange traded funds that invest in debt instruments. They invested a net of Rs 4,032 crore in debt VRR schemes in April.
The VRR channel is aimed at attracting long-term and stable FPI investments into debt markets, while providing FPIs with operational flexibility to manage their investments.
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While net fund outflow of Rs 14,858 crore from capital markets in April is a significant amount, it is one-eighth of outflows seen in March when the pandemic started spreading in India and the Prime Minister announced a 21-day lockdown on March 24.
The outflow from the equity markets reduced from Rs 61,972 crore in March to Rs 6,883 crore in April. The sharp decline in outflow brought relief for equity markets and they staged a smart recovery, in line with other global markets. After witnessing a sharp fall of 23 per cent in March, the Sensex at BSE revived sharply by 14.4 per cent in April.
Experts say as the government has announced to significantly relax the lockdown restrictions in districts marked in green and orange, and also allow certain business activities in districts marked in red, it will restart some economic activity in the country that has come to a grinding halt.
“While there has been relative control in the spread of virus in India, the uncertainty still continues. However, as countries around the world are working on developing medicine and vaccine for Covid-19 and there seems to be some progress on it, a success on that front will lead to a V-shaped recovery in the economy and markets. Unless, there is a fresh scare on spread of virus, I think FPIs will not press the panic button,” said the CEO of a leading brokerage.
Himanshu Srivastava, senior analyst manager research, Morningstar India, said, “So far, India has been able to contain the COVID-19 pandemic from spreading aggressively. In addition to that, measures announced by the government and the RBI periodically to revitalize the sagging economy would have also resonated well with investors.”
He further added that with selective relaxation in the lockdown and gradual opening up of economic activity in the country, foreign investors will be closely watching the developments on this front.
They would also start looking at the domestic economic indicators as well to see how the country manages its deficits, he added.
“These are unprecedented scenarios; and with risk-taking going off the table, emerging markets like India may continue to witness similar trends for a prolonged period or until the time situation on the coronavirus front stabilizes,” said Srivastava.
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