Funds withdraw ₹39.4k cr amid US Fed rate hike fears
MUMBAI:India-focused funds and global diversified funds that had invested heavily in India’s equity markets till September, have turned net sellers since October on the increased possibility of an interest rate hike by the US Federal Reserve. The hike would make US returns better than Indian ones.
Moreover, investors are uncertain about staying invested in India due to the note ban’s impact on the economy. Some say the GDP will fall by 0.5% due to the drop in consumption.
Most diversified global funds that invest in several Asia-Pacific markets have alloted around 3% of total investible funds to India. This will come down once the US raises rates in December.
Foreign investors sold ₹4,306 crore in October and further withdrew ₹18,244 crore in equities in November, according to regulatory data.
Net withdrawal by FPIs from the debt market was ₹21,152 crore during the period under review, translating into total outflow of ₹39,396 crore, according to exchange data.
In comparison, emergingmarkets funds and Asia-Pacific funds invested around $4 billion (₹27,200 crore) and $1.1 billion (₹7,480 crore) in Indian shares over the July-September quarter.
Since November, foreign funds invested about $10.16 billion (₹ 69,088 crore) in total, said Morningstar.
In the same period through October, domestic mutual funds invested ₹28,517 crore in equities as retail investors exploited the fall in the broader market on slowdown concerns.
“The trend shows that foreign investors are looking for safer havens like the dollar,” said Himanshu Srivastava, senior analyst with Morningstar.
The funds include Nomura India Equity, IShares MSCI India, First State Indian Subcontinent II, Jupiter India, Aberdeen Global Indian Equity Fund, SMAM High Growth India Mid-Cap Equity,
The FII pullout has already roiled stock markets, with the BSE Sensex having tumbled close to 6% since the end of September.
The outflows will also impact foreign exchange reserves and strengthen the dollar further. India’s rupee hit a 39-month low of around 68.8 in the end of November.
On Friday, the rupee closed at 68.2 to the dollar. For the week ended November 25, India’s foreign exchange reserves declined nearly $194 million to $365.306 billion.