New Delhi : Indian capital markets seem to be losing their ‘safe haven’ status among foreign portfolio investors as they appear headed for nearly $ 2-billion pullout of the so-called ‘hot money’ 2016, making it the worst period in last eight years in terms of foreign investments.
Surprisingly, it is the debt instruments that are taking the biggest hit, after remaining a preferred investment avenue for foreign funds in recent years, even as equities continue to attract net inflows but not enough to compensate the huge outflows from the bond market during the year passing by. Experts believe that any respite from such a sell-off is likely only in the second half of the new year 2017. The net outflow by FPIs in the debt market is already more than $ 6.2 billion (nearly Rs 43,000 crore) this year with a few days of trading left, which far exceeds the net inflow of less than Rs 30,000 crore ($ 4.3 billion) into the equity market, reports PTI. The equity market seems to have kept overseas institutional investors enthralled with its relatively steadier return promise, according to experts. The overall net outflow has made 2016 the worst year for Indian capital markets in terms of overseas investment since 2008, when FPIs had pulled out a massive Rs 41,215 crore in the wake of the global financial crisis.
The inflationary tendencies on the back of rising bond yields in the developed world bond market coupled with a resilient recovery in crude have led to profit booking.
Dollar strength and expectations of rate hike by the US Federal Reserve, the surprising US presidential outcome and the demonetisation drive, which created domestic cash crunch, sparked intense selling pressure in the capital markets, experts believe.
“Massive pullout of FPI investment, particularly in debt, happened during the last two months, particularly after the (Donald) Trump victory. This FPI pullout is an emerging market phenomenon, not an Indian phenomenon. The selling in debt is due to the market expectation of sustained Federal rate hikes starting December 2016,” Geojit BNP Paribas’ Chief Investment Strategist V K Vijayakumar said.
Echoing similar views, Dinesh Rohira, CEO at 5nance.com, said: “Capital outflows started in Indian markets from October over the uncertainty of US election results. This event was soon followed by the demonetisation drive that created a domestic cash crunch and sparked intense selling pressure in the capital markets. This will result in slower production and domestic consumption at least for a quarter.”