Post-filling funds in the last two months, foreign investors turned sellers again in September. They drew around Rs 7,600 crore from Indian Equity Markets amid Hawkish Stance by the US Fed and sharp Depreciation in the rupee. Thus, the aggregate outflow by Foreign Portfolio Investors (FPIs) from equity markets has reached Rs 1.68 lakh crore in 2022, depositories data showed.

“The UK Government’s Expansionary Fiscal Policies amidst elevated global inflation whipped the global currency markets and caused risk-off sentiment in equities,” said Shrikant Chouhan, Head – Equity Research (Retail), Kotak Securities. On the domestic aspect, he added some fuel-related worries, besides a marginal drop in GDP estimates.

FPIs have traded equities net of Rs 7,624 crore in September, followed net investment of Rs 51,200 crore in August and nearly Rs 5,000 crore in July. Before that, FPIs were net sellers in Indian equity markets for nine months in a row beginning October 2021. Although September was positive for FPIs, the net flow pace was lower than August. The scenario turned adverse after a hotter-than-expected inflation report dashed hopes that the US Federal Reserve would scale down its rate hikes in the coming months.

The August US inflation edged 0.1% higher from the previous month to 8.3%. Inflation raised to 8.5% in August last year. Besides, a 75 bps rate hike by the US Fed for the third time last month to control inflation and warning of further aggressive rate hikes made investors risk hostile. This also elevated apprehensions over global economic growth and cooled fears of the US economy going into recession.

In addition, the severe depreciation in the rupee also activated FPI outflows. He noted that the rising bond yields in the US allowed investors to move away from riskier markets during these ambiguous times and invest in safe havens like US treasuries. The FPIs may be on burdens of redemption from evolving market funds of which India is a part. On the contrary, foreign investors have impelled Rs 4,000 crore in the debt market in September.
Including India, FPI flow was negative for the Philippines, South Korea, Taiwan, and Thailand, whereas it was positive for Indonesia under review.