The outflow of foreign funds from the Indian markets reached its pinnacle in 2018 as Foreign Portfolio Investors (FPIs) withdrew a record Rs 80,919 crore during the calendar year.
This amount is almost double the amount witnessed during the trying times of global recession in 2008 when the outflow stood at Rs 41,216 crore, according to the data available with National Securities Depository Limited.
The net outflow came on the back of the foreign investors withdrawing a net of Rs 47,795 crore from the Indian debt markets as US Federal Reserve went on a spree of rate hikes clubbed with the turmoil in the Indian financial sector. The equity markets, on the other hand, saw withdrawals worth Rs 33,014 crore in 2018.
Prior to this, in 2008, when the global economies played were reeling under the stress, the country saw an outflow of Rs 41,216 crore, which is almost half the amount of outflows witnessed by the country in 2018. Back then the outflow was primarily driven by the equities, amounting to Rs 52,987 crore. The outflow in 2018, which in contrast to the inflow of Rs 2 lakh crore in 2017, has been attributed to interest rate differential with the US, the higher return in US stock exchanges along with a gamut of internal issues -- liquidity crunch and current account deficit.
Ironically, in 2014, the FPI inflows had peaked at Rs 2,56,213 crore. Incidentally, during the month of May in the same year, Narendra Modi took over as Prime Minister of India. “Any rational person who examines the economic indicators will hold back fresh investment in India or pull out a part of his investment. That is what is happening now and the trend will not be reversed until a new government is in place. That is the political message to the people of India,” former Finance Minister and Congress leader P Chidambaram told DH.
Many analysts believe that the government’s assault on the institutional autonomy of the Reserve Bank of India throughout the year was also one of the reasons behind it.
“The FPIs and FIIs are very critical of how the government interacts with markets. And unfortunately, this government doesn’t seem to care about anything,” an economist with IMF said, wishing anonymity.
According to some other analysts, the uncertainty regarding 2019 general elections is also a reason behind more and more FIIs withdrawing from the markets. “It reflects the assessment of FPIs/FIIs that the investment environment in the country has become difficult because of policy uncertainty, frequent changes in the rules and regulations, and the diversion of the government’s attention from the economy,” Chidambaram added.