India sees steepest FII outflow in 2 years
MUMBAI: Selling of Indian shares by foreign institutional investors (FIIs) intensified in October as the markets plunged, weighed down by several macro concerns amid a global rout. Foreign investors sold local equities worth $2.35 billion so far this month, the most since November 2016 when they withdrew $2.6 billion. The sell-off follows an outflow of $1.3 billion and $277 million in September and August, respectively. In 2018, FIIs have sold local equities worth $4.4 billion.
Depreciation of the rupee against the dollar and high crude oil prices are key factors behind the FIIs move to dump India. Susmit Patodia, head of sales, institutional equities at Motilal Oswal Financial Services said: “October has been coming together of multitude of factors leading to the high FII outflows. It started off with crude crossing $80 and then we had the US interest rates crossing 3% decisively. This led to the rupee fall and as we have seen with every rupee depreciation, FII outflows see a significant pick up.”
“Domestic factors, such as the IL&FS default, NBFC scare and liquidity drying up, also shook the confidence of the market,” he added.
Typically, as FIIs sell-off always peaks with sharp depreciation in currency and with the rupee unlikely to see another 10% slide from current levels,
FOREIGN INVESTORS SOLD LOCAL EQUITIES WORTH $2.35 BILLION SO FAR THIS MONTH, THE MOST SINCE NOV 2016
Patodia said the markets are probably close to an end to intensified FII selling.
Himanshu Srivastava, senior analyst and manager (research) at Morningstar Investment Adviser India, said it was not that FIIs were shunning India, but adopting a more cautious stance and opting for markets where their money could be safer and less vulnerable to volatility. “India is still trading at a higher level than last year, so those FIIs who remained invested in India over last three years, or so, are finding this as a profit booking opportunity due to uncertainties both on the fundamental and macro levels, especially ahead of the state elections due next month. Overall, both fundamental and macros do not give confidence to foreign investors to remain invested in India rather they will scout for other options where there are more sustainability,” Srivastava added.
This month, the Sensex lost 3.8% after a steep fall of 6.26% in September. In 2018, the Sensex is still up 2% compared to a fall of 2.39% of the MSCI Emerging Markets index, while the rupee has weakened over 13.5% and Brent crude prices have increased nearly 21.5%.