India sees worst outflow of FIIs/FPIs in 18 years

For the first time in 18 years, the country has witnessed a record withdrawal of foreign investors from the Indian equity and debt markets.

Foreign Institutional Investors (FIIs) and Foreign Portfolio Investors (FPIs) have pulled out a record Rs 51,591 crore from the Indian markets in less than nine months of this year amid concerns over a slide in rupee value against the dollar.

Earlier in 2008, the FIIs had sold a net amount of Rs 41,216 crore from Indian markets when the country suffered the after-effects of a financial crisis triggered by the collapse of Lehman Brothers in the US.

The debt markets till Wednesday have seen a whopping outflow of Rs 44,495 crore in 2018, while the equity markets have seen an outflow of Rs 7,038 crore till now, according to data available with the National Securities Depository Limited (NSDL).

According to experts, the weakening of rupee against the US dollar has resulted in the withdrawal of FIIs/FPIs. “The currency weakness has led to the sell-off by foreign investors,” Rajat Rajgarhia, CEO, Institutional Equities, Motilal Oswal, told DH.

With the rupee touching an all-time low of 72.98 against US dollar on Tuesday, the currency has depreciated around 10.8% in 2018 so far, from Rs 65.86 on January 1, 2018.

India is part of emerging market economies that have been seeing sell-offs this year, Rajgarhia said.

The country had seen outflow of foreign investment from the markets in 2016 as well, albeit at a much lesser level of Rs 23,079 crore. The 2016 outflow was triggered by the demonetisation drive by the prime minister.

In November and December 2016 alone, the country saw an outflow of FPIs and FIIs worth Rs 66,507 crore.

“There would be minimal outflow of FIIs and FPIs if they believed in the economic prospects of India. Their exodus suggests a lack of faith in the Modi government’s management of economy,” economist and senior Congress leader Rajeev Gowda said.

Interestingly, the country saw the highest inflow of investments in 2014, when Narendra Modi took charge. In 2014, the country saw an inflow of foreign investments worth Rs 2,56,213 crore — Rs 97,054 crore in the equity markets and Rs 1,59,156 crore in debt markets.

Experts suggest the RBI might go ahead with a rate hike in case the rupee slide continues, owing to global woes. “We might see a rate hike in the coming monetary policy committee (MPC), and the RBI governor has been hinting towards it as well,” an analyst told DH.

On June 14, the Federal Reserve Board in the US had approved increasing the discount rate (primary credit rate) at the bank from 2.25% to 2.5% with immediate effect. Owing to this, the markets saw an outflow of Rs 15,795 crore by FIIs and FPIs in June alone.

However, as the RBI hiked its repo rate on inflation concerns, the debt markets have seen an inflow worth Rs 5,146 crore in August. In September, till Wednesday, the debt markets have seen an outflow worth Rs 6,481, while the equity markets have seen an outflow worth Rs 4,646 crore.