Foreign investors pull out ` 29,776cr from market

The foreign portfolio investors ( FPI) have pulled out ` 29,776 crore from the domestic market, their biggest monthly sales in last 18 months as spike in global crude oil prices and appreciation of dollar against major currencies increased risk aversion towards emerging market assets. They pulled out a total of ` 10,060 crore from the equities and ` 19,654 from the debt market.

“Last month, we saw a spike in risk aversion due to hardening of crude oil prices leading to outflow of funds from emerging markets including India,” said Ajay Bodke, CEO and chief portfolio manager at Prabhudas Lilladher.

However he noted that the prices of oil has corrected significantly after hitting a high of $ 80 per barrel, which is positive for India.

“The OPEC and Russia are meeting on June 22 to consider and finalise a plan to increase production by one million barrels per day. If that materialises, risk aversion is likely to recede as the prices of oil is likely to soften further,” he added.

Apart from the oil prices, the prospects of higher interest rate in the US and political crisis in Europe also impacted investor sentiments.

According to Emerging Portfolio Fund Research ( EPFR), emerging market equity funds posted their largest outflow during the week ending May 30 since the last week of 2016, as the potential for global synchronized growth subsided, rising US interest rates and a stronger US dollar weighed on investors. It said that European equity funds too posted outflows due the political upheaval in Italy and Spain.

“Fears of revisiting the euro crisis from earlier this decade returned, as political uncertainty in Italy brings the potential for a referendum vote to either stay or exit the EU. The uncertainty sent shockwaves across all markets, causing investors to search for investment havens, extending the outflows from Europe Equity Funds to twelve straight weeks, making it the longest outflow streak since 2016,” EPFR added.

Last month, we saw a spike in risk aversion due to hardening of crude oil prices leading to outflow of funds from emerging markets including India. — Ajay Bodke, CEO, Prabhudas Lilladher. Apart from the oil prices, the prospects of higher interest rate in the US and political crisis in Europe also impacted investor sentiments.