Foreign investors continued to sell for the seventh consecutive month, pulling Rs 17,144 crore off the Indian stock market in April amid fears of an aggressive rate hike from the US Federal Reserve that is chasing these investors and weighing on confidence. In addition, given the high outlook for aggressive rate hikes globally and headwinds from rising crude prices and rising inflation, foreign flows are expected to remain volatile in the near term. said experts.
Foreign Portfolio Investors (REITs) remained net sellers for seven months to March 2022, withdrawing a massive net amount of Rs 1.65 lakh crore from shares. These were largely driven by expectations of a rate hike by the US Federal Reserve and the deteriorating geopolitical environment following the Russian invasion of Ukraine.
After a six-month sell-off, REITs turned net investors in the first week of April due to the market correction and invested Rs 7,707 crore in stocks. After a brief respite, they became net sellers again during the shortened holiday week of April 11-13, and selling continued in subsequent weeks. That makes foreign investors net sellers of Rs 17,144 crore in April, much less than a net withdrawal of Rs 41,123 crore in March, according to custodian data.
The strong selloff could be attributed to weak global signals after Federal Reserve Chairman Jerome Powell hinted at a 50-basis point rate hike in May. REITs remained net sellers in April as "markets continued to price in the likelihood of aggressive rate hikes by the U.S. Federal Reserve," said Shrikant Chouhan, head of equity research (retail) at Kotak Securities.
Himanshu Srivastava, Associate Director - Head of Research, Morningstar India, said: "Fears of aggressive rate hikes from the US Federal Reserve continue to haunt investors and weigh on investment sentiment. in emerging markets like India."
According to Vijay Singhania, Chairman of TradeSmart, inflation rates were a major reason for the stock exit in April. Another reason is a rate hike by the US Federal Reserve to 2.866%. Apart from equities, REITs withdrew Rs 4,439 crore net from bond markets during the period. According to Srivastava, there is not much encouraging foreign investors to invest in Indian stock markets at the moment.
"In addition to an impending rate hike by the US Federal Reserve, uncertainty surrounding the Russia-Ukraine war, high domestic inflation figures, volatile oil prices and weak earnings quarterly reports don't paint a very positive picture. The upsurge in coronavirus cases in China is also concerning. In such a scenario, REITs generally take a wait-and-see approach until more clarity emerges," he said.
Given the rapidly changing environment and global circumstances, foreign inflows into Indian equities could remain under pressure until the underlying drivers and investment scenario change, he said. added. "Given the geopolitical factors currently affecting the market, REIT flows are likely to remain volatile in the near term," said Singhania of TradeSmart. Besides India, other emerging markets, including Taiwan, South Korea and the Philippines, have seen capital outflows so far in April.
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