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FIIs pull out more than $29 bn in FY22 amid high valuations, US Fed rate hike fears, geopolitical tensions

The process of FII capital returning to India is expected to take time given the high valuations and risk to corporate earnings. Recently ended December earnings season clearly indicated that corporates face margin pressure due to higher input costs.

February 26, 2022 / 07:30 AM IST

Money flow from foreign institutional investors (FII) is always a crucial factor for emerging markets including India, but this financial year domestic institutional investors including retail investors seem to have played a big role by supporting the market on every downside, though they could not match the FII flow.

In the year ending March 2022 so far, FIIs have net sold more than $29 billion worth of shares (Rs 2.22 lakh crore) and 80 percent of that was seen in the last five months.

The reasons are few but very strong. High valuations after a healthy run towards a record high of 18,604 on the Nifty in October 2021 with a gain of more than 32 percent from January 2021, and rising expectations of more rate hikes by the US Federal Reserve to fight elevated inflation are major reasons for FII outflow. Analysts globally expect 5-7 policy rate hikes by the Fed in 2022.

And now geopolitical tensions between Ukraine and Russia have spurred the flight of FII money from India. Russia started off invasion of Ukraine from Thursday morning with Moscow military & vehicles entering into Ukraine via Crimea, and later Western countries imposed severe sanctions on Russia to hurt its economy.