FPIs pull out Rs 9,103 cr in April as COVID-19 triggers rush to safe havens

FPIs pull out Rs 9,103 cr in April as COVID-19

New Delhi

Overseas investors have pulled out a net Rs 9,103 crore from the Indian markets in April so far as the COVID-19 crisis triggered a return to safe-haven assets like gold and dollar-denominated securities.

According to the latest depositories data, foreign portfolio investors (FPI) withdrew a net sum of Rs 2,951 crore from equities and Rs 6,152 crore from the debt segment between April 1-9. The total net outflow stood at Rs 9,103 crore.

In the previous month, FPIs had withdrawn a record amount of over Rs 1.1 trillion on a net basis from the Indian markets (both equity and debt).

The capital outflow in March was the highest withdrawal ever since FPI data has been made available on National Securities Depository Ltd.

"As the Covid-19 pandemic worsens across geographies, the disruption to the global economy is inevitable. The pandemic has adversely impacted investor sentiment and infected the markets globally.

"Emerging markets have been worst hit with foreign investors marching out from there to take shelter in safer investment avenues. India has been among the worst hit in the emerging market basket. 

Enhanced volatility can be seen in both the markets with equity markets falling sharply and yields in the fixed income segment moving up significantly," said Himanshu Srivastava, senior analyst manager research, Morningstar India.

Harsh Jain, co-founder, and COO at Groww noted that FPI investments in the equity category have been positive in the last two trading sessions of April and this can be explained by the sentiment in European markets changing in hopes that the virus is nearing its peak.

He further said an inflow of around $7 billion is likely as the weight of Indian stocks has increased in the MSCI index.

According to Srivastava, though the broader the trend continues to be negative, this week the quantum of net outflow was much lower compared to the previous few weeks.

During this holiday-truncated week (between April 6-10), with just three trading sessions, "FPIs withdrew net assets worth $457.5 million from the Indian markets. This was significantly lower than the net outflow of $1.7 billion recorded in the previous week."

Net outflows continued from the Indian fixed income markets with investors preferring safer dollar-denominated asset classes, or safe havens like gold, as against fixed income securities of emerging markets like India where risks are relatively higher, Srivastava added.

"FPIs are exiting emerging markets at every level. However, once there is a semblance of control over the COVID-19 virus, foreign portfolio flows are bound to return to emerging markets in general and India in particular.

"Hopefully, in six months' time, when the economic picture is clearer, FPIs will see India as a strong revival story, on the back of its largely self-reliant economy, the beneficiary of low oil price and falling interest rates.

The expected increased weightage in the MSCI index, in the near future, will also support favorably," said Amar Ambani, senior president and head of research at Yes Securities.