Continuing their selling spree, foreign investors have pulled out nearly Rs 1,200 crore from the debt markets in the first two weeks of the month on higher fuel prices and possibilities of rate hike by the US Federal Reserve.
The latest sell-off comes after foreign portfolio investors (FPIs) withdrew an amount close to Rs 50,000 crore from the debt markets in last five months (February to July). Prior to that, overseas investors had infused over Rs 8,500 crore in January.
As per the data compiled by depositories, net outflow in the debt markets stood at Rs 1,190 crore during July 2-23.
“Selling by FIIs in the Indian debt markets could be attributed to higher fuel prices which fans fear that the inflation may stoke further. This in turn could widen the country’s current account deficit thus putting pressure on the rupee which has already depreciated almost 8 per cent since the end of January this year,” said Himanshu Srivastava, senior research analyst, manager research at Morningstar.
“Additionally, tightening of policy back in the US also does not augur well for the Indian debt markets. This trend may continue given there are expectations that the US Fed may hike rates further,” he added.
In contrast, foreign portfolio investors have put in Rs 592 crore in equities during the period under review.
After being on a selling spree for three consecutive months where FPIs pulled out net assets worth over Rs 20,000 crore (between April-June) from the equity markets, the month of July with net inflow of Rs 552 crore may appear like a breather.
“It would be too early to celebrate given the factors that influence FPI flows does not look promising. Also, the recent buying by FPIs could be a part of their short-term tactical play as the quantum of net inflows so far does not display conviction,” Srivastava added.
Additionally, the concerns continue to persist over higher crude oil prices; increasing retail inflation; depreciating rupee against the US dollar; high chances of further rate hikes by the US Fed and fear of global trade war, he added.