The ongoing sell-off by foreign portfolio investors (FPIs) has led to withdrawal of over Rs 2,00,000 crore from the domestic stock markets since October last year. The Russia-Ukraine conflict has added to the nervousness of FPIs, already bracing for interest rate hikes by the US Federal Reserve. The FPI pull-out has hit the rupee, with its exchange rate against the dollar falling below the 76 level to 76.16 despite heavy RBI intervention.
On March 4, FPIs pulled out Rs 7,631 crore from the stock markets, taking the total outflows to Rs 18,614 crore in the last three sessions of March as Russia intensified the attack on Ukraine and oil prices soared. This outflow has come after withdrawals of
Rs 45,720 crore in February and Rs 41,346 crore in January. With this, FPIs have pulled out
Rs 2,06,646 crore (excluding FPI investments in IPOs) since October 1, 2021.
If the situation in Ukraine worsens and FPI sales continue, the rupee will cross the 77 level against the dollar in the coming days, analysts said. While banks have been purchasing dollars to facilitate FPI pull-out, the RBI has been selling dollar from its forex kitty to salvage the rupee, said a banking source.
During the week ended February 25, India’s foreign currency assets declined by $ 2.228 billion. “The Russia-Ukraine conflict is hurting Indian rupee, bonds and equities via three channels: oil prices, US dollar Index and global equity prices,” said a Kotak Securities report.
Analysts said there could be a further temporary shock if things worsen more in Europe or, for that matter, a new front opens up in Asia. While the rupee is likely to remain under pressure, the RBI with its forex kitty of $631 billion will be able to prevent a big slide in the currency.
However, domestic institutional investors (DIIs), led by LIC, mutual funds and insurance companies, have been stepping up their purchases, absorbing most of the FPI sales. “There is a tug-of-war going on between FPIs and DIIs,” said VK Vijayakumar, chief investment strategist at Geojit Financial Services.
Countering the FPI strategy, DIIs have invested Rs 12,599 crore in March 1-4, adding to their total investments of Rs 1,42,872 crore since October 2021. DIIs invested a record amount of Rs 42,084 crore in February, their highest monthly investment since they put Rs 55,595 crore in March 2020 when Covid pandemic hit the country.
Despite a correction of around 13 per cent from the peak in Nifty, FPIs continue to sell since market sentiments have been impacted globally by the uncertainty triggered by the war and the surge in crude prices. This is likely to impact the IPO market and LIC’s plan for listing this fiscal and push up the current account deficit (CAD).
The Sensex has already fallen 5 per cent, or 2,899 points, to 54,333.81 since February 24 when the Russian invasion of Ukraine started. Global markets are spooked with the events happening in Europe, which are causing volatility. “FPIs have been sellers for almost 6 months now. Commodities are hitting highs across the board – oil, coal, metals and agri-commodities,” said Vineet Bagri, managing partner, TrustPlutus Wealth.
The FPI pull-out is dampening the sentiment in equity and forex markets. “Their impact on markets is visible, with increase in volatility and declining equity prices. However, the fact that this selling by foreign investors has been absorbed by domestic investors bodes well for the outlook of Indian markets,” Bagri said.
According to a Morgan Stanley report, supply constrained oil price rises are bad for India. Indeed, the recent 25 per cent jump in oil prices will expand the current account deficit by 75 bps and inflation by 100 bps on an annualised basis, it said.
US Federal Reserve Chair Jerome Powell recently said he will back a quarter point rate increase when the Fed meets March 15-16, putting to rest debate over starting a post-pandemic round of rate hikes with a larger than usual half-point increase.
For more information call us at 9891563359.
We are a group of best insurance advisors in Delhi. We are experts in LIC and have received number of awards.
If you are near Delhi or Rohini or Pitampura Contact Us Here
