FPI pullout since January at Rs 48,645 crore; US Fed rate hike may raise outflows

With global markets witnessing high volatility, foreign portfolio investors (FPIs) have taken out Rs 48,645 crore from domestic stock markets since January 1 this year.

According to data available with NSDL, while FPIs pulled out Rs 33,303 crore in January, the sell-off continued this month, with FPIs withdrawing Rs 15,342 crore in February so far. Despite the FPI sell-off, the benchmark Sensex declined just 182 points since January 1 this year to 57,832.97 on February 18, 2022.

Analysts said a move at the FOMC’s next meeting on March 15-16 is fully priced into markets and there has been some betting that officials could increase rates by as much as 50 basis points. VK Vijayakumar, chief investment strategist at Geojit Financial Services, said.

“The global macro trend is dominated by the expected monetary tightening by the Fed. When the rates and bond yields rise in the US, capital outflows from emerging markets may rise. Therefore, going forward, FPIs can be expected to sell more, unless market corrections make valuations attractive.”

Domestic institutions are slowly accumulating high-quality financials whose valuations have turned attractive due to sustained FPI selling, said an analyst. The net FPI outflow from Indian equities in the last year is close to $8 billion — the highest since 2009.

“The FPI view of India is that India has already considered earnings growth of 16-18% CAGR for FY23 and FY24, based on expectations of an earnings and economic growth cycle. And it trades at 17 times FY24 which is at the higher end of its historical valuation range,” said Rajesh Bhatia, MD & CIO, ITI Long Short Equity Fund.

“Yet, these estimates don’t account for risks of rising cost of capital in the US (India’s cost of capital is linked to US cost of capital) and therefore PE contraction potential,” he added.