Foreign portfolio investors (FPI) have pulled out Rs 476 crore on net basis so far from Indian markets in September, reflecting a cautious stance by participants amid fears of resurgence of coronavirus cases in Europe and other countries.
According to depositories data, FPIs have withdrawn a net Rs 4,016 crore from equities and invested a net sum of Rs 3,540 crore in debt instruments during September 1-25 — a net outflow of Rs 476 crore.
FPIs remained net buyers for three consecutive months — June-August.
They had invested Rs 46,532 crore in August, Rs 3,301 crore in July and Rs 24,053 crore in June on net basis.
"The renewed fears of re-emergence and surge in coronavirus cases in Europe and other countries have raised concerns about the possibility of fresh lockdowns being imposed in infected regions, which would have prompted FPIs to adopt a cautious stance," said Himanshu Srivastava, associate director – manager research, Morningstar India.
Moreover, the rising COVID-19 cases in India and the challenges faced by the Indian economy do not instill confidence either, he said.
Given the surge in equity markets over the last few months and appreciation in Indian rupee against the greenback, FPIs would have found this as an opportune time to book profit ahead of impending uncertainty, Srivastava added.
Harsh Jain, co-founder and COO at Groww, said, "Due to the high liquidity thanks to printing of money, there is a lot of money flowing in the system which also results in quick ballooning of different assets. This results in quick investments and quick withdrawals from different assets. We have already seen such movements in equity, treasuries, gold, and even silver over the last few months.”
In a world with so much liquidity, such bigger-than-normal drawdowns and market climbs will happen for some more time, Jain added.
Regarding investment in debt segment, Jain said the revival of interest in debt is a fresh change that was missing for nearly six months.
Citing reasons for the investment in bonds market, Srivastava said amid aggressive bond buying by the US Federal Reserve, the yields there have come down.
This could be one of the reasons for FPIs to look for other attractive investment destinations like Indian debt markets, which could potentially offer better returns.
Commenting on future of FPI flows, Jain said that big events to look forward are US election results and US-China relations as these two factors have been a major driver behind market moves in the last year and investors would need favourable signs on both ends to be more certain of their investment plans going forward.