FPI outflows at Rs 25,586 cr in May

New Delhi: Foreign investors pulled out a massive Rs25,586 crore from Indian equities in May due to uncertainty surrounding the outcome of general election and outperformance of Chinese markets.

This was way higher than a net outflow of over Rs8,700 crore in April on concerns over a tweak in India’s tax treaty with Mauritius and a sustained rise in US bond yields. Before that, FPIs made a net investment of Rs35,098 crore in March and Rs1,539 crore in February, while they took out Rs25,743 crore in January, data with the depositories showed. Going ahead, election results, which will be out on June 4, could determine FPIs flows into Indian equities in the near future.

In the medium term, US interest rates will exert more influence on FPI flows, Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said. According to the data, Foreign Portfolio InvestoRs(FPIs) made a net withdrawal of Rs25,586 crore from equities in May. The relatively high valuations and weak earnings, particularly in the financial and IT sectors where FPIs have a high allocation, along with political uncertainties such as ambiguity around the outcome of elections, global risk-off sentiment, and the appeal of Chinese markets, have led to FPI selling, Vipul Bhowar, Director of Listed Investments at Waterfield Advisors, said.

“The main trigger for the FPI selling has been the outperformance of the Chinese stocks. The Hang Seng index boomed 8 per cent in the first half of May, triggering selling in India and buying in Chinese stocks,” Vijayakumar said. Another reason was the spike in US bond yields. Whenever the US 10-year bond yields rose above 4.5 per cent, FPIs sold in emerging markets like India and moved money to bonds.