FPI exodus on, banking and financial sectors bear the brunt
Foreign portfolio investors (FPI) turned net sellers in July, withdrawing Rs 12,419 crore from the Indian equity market, data provided by National Securities Depository Ltd (NSDL) shows.
This is the highest outflow since October 2018, when foreign investors pulled out Rs 27,622 crore from the stock market.
India’s July outflow is also the highest among emerging markets, which indicates that investors have started shifting to other developing economies in their hunt for higher returns.
The FPI exodus, after five straight months of buying, was largely driven by the Centre’s proposal to impose a higher tax surcharge on the super-rich. Poor monsoon and a slowing economy added to the problem, experts feel.
According to the NSDL data, overseas investors withdrew Rs 3,002 crore in July . The selling in the equity market was counterbalanced by the influx of Rs 9,433 crore in the debt segment.
The month was also the worst in 17 years for the stock market. Benchmark indices the Sensex and the Nifty tumbled 4.86 percent and 5.69 percent, respectively.
The biggest carnage was seen in banking and other financial services, which collectively lost Rs 6,698 crore in overseas investment, of which Rs 6,014 crore was withdrawn in the last 15 days of July.
Foreign investors had previously remained net buyers in the sector for five straight months, though inflows had steadily declined after peaking in March.
Other sectors that witnessed major selling include software and services (Rs 5,935 crore), automobiles and auto components (Rs 1,700 crore), oil and gas (Rs 1,161 crore) and capital goods (Rs 1,151 crore).
Despite the rut, some sectors saw decent inflows in July, led by “others” (see note) which raked in Rs 5,367 crore in July. It came under the scanner last month after foreign investors withdrew Rs 826 crore from the sector.
Other sectors that witnessed foreign inflows were insurance (Rs 979 crore), retailing (Rs 746 crore), chemicals and petrochemicals (Rs 206 crore) and telecom services (Rs 177 crore).
The outflow that roiled the market in July finally drew the Centre’s attention on August 2, when senior bureaucrats from the prime minister’s office (PMO) met finance ministry officials to discuss FPI surcharge.
The meeting failed to improve FPI sentiment and the selling spree continued. Around Rs 12,441 crore had been withdrawn from the Indian stock market by August 16.
Analysts expect the outflows to go on, as, apart from global and domestic headwinds, the dollar returns are also not sufficient to make India an attractive investment destination.
“Earnings in terms of dollars are low. If we talk about the Sensex, it is still trading at pretty much the same level that it was in 2008 high, the same is true for the Nifty,” Mustafa Nadeem, CEO, Epic Research told Moneycontrol.
Some experts, however, feel that foreign investment will pick up in the long run, as India is among the fastest-growing economies in the world despite recent growth downgrades by agencies such as IMF, CRISIL and Fitch.
“India is indeed the only country that taxes FPIs but the outflows are unpredictable and as long as the valuations are lofty in some largecaps, they will be selling targets for FPIs,” Umesh Mehta, Head of Research, SAMCO Securities, told Moneycontrol.
Note: BSE had classified more than 4,700 number of issuers into 35 sectors. NSDL has decided to rely on the BSE classification. Any FPI investment outside those 4,700 issueres, is classified as “others”.
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