Foreign investors have pulled out ₹1.5 lakh crore from the Indian markets in 2022 so far — here's why

Foreign investors have pulled out ₹1.5 lakh crore from the Indian markets in 2022 so far — here's why
  • Sensex has slipped nearly 9% so far this year in over four months as foreign institutional investors (FII) have been selling equities massively in the Indian market.
  • Hike in the US interest rates is one of the main reasons why FIIs are shifting money from emerging markets like India to developed markets.
  • The aggressive sell-off in 2022 is the opposite of the position that FIIs took in 2021 when they invested over ₹50,000 crore in the Indian markets.
The sell-off by foreign institutional investors (FIIs) from the Indian stock markets this year is talk of the town as it has hampered the market sentiment and sucked out the liquidity.

In 2022, foreign investors have pulled out ₹1.5 lakh crore from the Indian markets including equity, debt and hybrid assets. During the same time, Sensex slipped 9%.

The sell off in 2022 is aggressive than last year as FIIs had invested ₹50,088 crore in Indian markets in 2021.
January -₹28,526 crore
February-₹38,068 crore
March -₹50,067 crore
April-₹22,688 crore
May so far-₹11,394 crore
Total-₹1.50 lakh crore
Since FIIs are among large investors in emerging markets like India since they have access to abundant capital, a massive FII sell-off has the potential to spook investors.

However, domestic institutional investors (DIIs) have saved the sinking boat by being constant investors. Domestic institutional investors are institutions like insurance companies, mutual fund houses, pension funds, or provident funds.

That said, the sentiment seems to be getting worse as even systematic investment plan (SIP) inflows have come down in April reflecting poor risk appetite of investors.

But why are FIIs pulling money out of India?
The US central bank has been raising interest rates to control inflation caused by the disruptions in supply chain due to the Russia Ukraine war, after effects of Omicron and other factors resulting in a surge in inflation and economic slowdown.

Rise in the US interest rates does not bode well for the Indian markets as foreign investors pull out money from emerging and risky markets like India and invest in safe and secure markets in the US like debt funds.

The need to hike interest rates which had fallen during the last two years as the US Fed tried measures to stoke demand. However, the recent shutdowns in China and the Russia-Ukraine war resulted in a drastic increase in inflation. Hiking interest rates is one of the means to tame this inflation.

Because of high inflation, the US central bank has been looking to stop measures for economic stimulus – also known as quantitative easing – that began after the pandemic.

“Market sentiments were hurt as investors fear that high inflation is threatening to eat into corporate profits and rein in consumer spending. Additionally, the outlook for the global economy is looking gloomy amid supply chain disruption, lockdown in China and Russia’s war against Ukraine. Rupee future maturing on May 27 depreciated by 0.76% amid strong dollar, sell-off in domestic markets and persistent FII outflows,” said analysts at ICICI Securities.

So FII selling is all around and everyone is obsessed!Two things to note, let's zoom out here -1. When there's a risk in the system - war, inflation, free money tightening etc. equities always see sell-off2. From an FII's perspective with volatility around Russia and China, BRICS suddenly becomes a risky Emerging Market bet - so sell off is got to do with taking money off Emerging Market Strategy and off BRICS in the second place$NIFTY50.NSE

— (@mehrotra_saket) May 11, 2022

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