Foreign portfolio investors withdraw Rs 35,506 crore in February

Continuing the selling streak for the fifth consecutive month, Foreign Portfolio Investors (REITs) withdrew as much as Rs 35,506 crore from Indian markets in February.

REITs have been withdrawing funds from Indian markets since October 2021 and the amount of outflows in February 2022 is the highest since March 2020, when foreign investors withdrew Rs 1,18,203 crore.

“The pace of fund outflows has increased sharply following the US Fed’s decision to lift stimulus and raise interest rates sooner rather than later. On top of that, tension between Russia and the ‘Ukraine and fears of a war between the two countries looming, foreign investors took a cautious approach and started to avoid investing in emerging markets like India,” said Himanshu Srivastava, Associate Director (Manager research) from Morningstar India.

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Now, with Russia invading Ukraine, geopolitical tensions of such magnitude do not bode well for emerging markets like India in terms of foreign flows, as these markets are considered riskier investment destinations and more prone to geopolitical unrest than developed markets, he added.

From February 1 to 25, REITs withdrew Rs 31,158 crore from equities, Rs 4,467 crore from the debt segment, according to custodian data.

However, they pumped Rs 120 crore into hybrid instruments during the same period. Geojit Financial Services chief investment strategist VK Vijayakumar said it was difficult to anticipate how the Ukraine crisis would unfold. If the conflict persists for any length of time, the consequences for the global economy would be severe.

“Crude oil at $104 a barrel would be bad for Indian macroeconomies. The trade deficit will widen, the rupee will depreciate further and inflation will rise above RBI comfort levels, forcing the central bank to abandon accommodative monetary policy This can have an impact on India’s recovery growth,” he said.

REIT inflows are nothing but speculative money and mainly follow four parameters, said Shrikant Chouhan, head (stock research-retail) of Kotak Securities.

The first is the trend of the Indian rupee against the trend of the dollar. The dollar and the rupee have an inverse relationship. Second, oil prices. If they are at higher/higher levels, it makes them less interested in investing in emerging markets, as most of them are highly dependent on imports, which hurts basic fundamentals, he said. declared.

Third, if the yield on US 10-year bonds starts to rise, it makes more sense to invest in the bond market than to hold money in riskier assets like stocks and finally, if the country in which they invest faces a political crisis event, it invites volatility and causes a sudden change in price.

“Unfortunately, all of these things are impacted at the same time, which is why there is more possibility of new exits from REITs,” Chouhan said.

Looking ahead to FPI streams, Nitin Raheja, executive director and head (discretionary equities) of Julius Baer, ​​said the Ukraine crisis and its impact on energy markets will mean that in the short term it could be risky trading globally. which is never good for emerging markets.

(Edited by : Jomy Jos Pullokaran)


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