Foreign investors pull out Rs 28,242 crore from Indian stock markets in May
Overseas investors have withdrawn a sizable amount from Indian equity markets so far in May, selling shares worth Rs 28,242 crores according to data from the depository NSDL. This represents the largest outflow seen since January last year and indicates heightened volatility among foreign holdings.
Major global funds have been trimming their portfolios as various domestic and international factors fuel uncertainty. The ongoing general election cycle has added to the unease while better opportunities are emerging in other recovering economies like China. Valuations there look relatively more attractive which is prompting some diversification of allocations away from India.
Domestic institutional investors have partly offset these foreign outflows, purchasing shares valued at Rs 33,973 crores over the same period. However, the net effect has still been a drain of Rs 35,532 crores from the cash segment of the stock market. Unsurprisingly, risk aversion levels measured by the India VIX index have also risen above 21 – showing enhanced near-term volatility expectations among market participants.
While political stability after the election results could stimulate huge inbound flows again, volatility is likely to persist according to analysts until clarity emerges on the outcome. Foreigninterest in Indian debt meanwhile has held up much better, with net purchases of Rs 45,087 crores plus additional buying of Rs 7,040 crores under a special investment scheme. The strength of dollar-denominated bond yields globally versus domestic paper also appears to have directed some international money into our fixed income market.
Overall, the sizable equity sales by foreign portfolio investors in May underline their current unease about Indian assets. A stable government mandate post-elections will be key to restoring confidence and attracting investment back into our stock markets on a sustained basis once more.
