Foreign portfolio investors (FPIs) have pulled out Rs 4,515 crore from the equities segment in the first half of July as they turn cautious towards the Indian market.
"With markets trading near all-time high, FPIs would have chosen to book profits. They have also been staying on the sidelines given high valuations and most likely on the back of the risk of a potential third wave of the coronavirus pandemic," said Morningstar India Associate Director (Manager Research) Himanshu Srivastava.
Though the continuing firmness in the dollar and the possibility of rising bond yields in the US do not augur well for capital flows into emerging markets like India, there is no immediate worry at the moment, he said.
Besides, the outflows have not been huge which signifies that foreign investors are adopting a cautious stance towards Indian equities rather than being negative on it, he added.
Overseas investors pulled out Rs 4,515 crore from the equities during July 1-16, depositories data showed.
At the same time, they invested Rs 3,033 crore in the debt segment.
Net outflow during the period under review stood at Rs 1,482 crore.
In June, FPIs became net buyers in Indian markets at Rs 13,269 crore.
Commenting on the FPI activity in 2021 so far, V K Vijayakumar, chief investment strategist at Geojit Financial Services, said it has been "hugely volatile".
They were aggressive buyers for three months during January, February and March. On concerns of adverse impact of the second wave of the pandemic, FPIs sold in April and May. They made a come back in June and started buying and now in July, they have again started selling, he noted.
For other emerging markets, Kotak Securities Executive Vice-President (Equity Technical Research) Shrikant Chouhan said except for Indonesia, all other emerging markets witnessed FPI outflows in July so far.
"Philippines, South Korea, Taiwan and Thailand saw a total outflow of USD 151 million, USD 2,043 million, USD 373 million and USD 282 million, respectively. Indonesia reported inflows to the tune of USD 59 million during the same period," he noted.
On the outlook, he said FPI flows to India may remain volatile in the near term due to the US Fed monetary policy and rising crude oil prices.