Foreign investors are as spooked as they were in the first month of lockdown in India

• India markets have never experienced the kind of foreign investor selloff that they are experiencing now.
• Every month since November last year has witnessed the worst FII selloff in the history of Indian markets.
• The only exception is March 2020 when India went into a nationwide lockdown due to the outbreak of Covid-19.

India has never witnessed the kind of selloff from foreign investors that it has this year. Since the beginning of 2022, foreign investors have pulled out more money from the Indian markets than they ever did – with the exception of March 2020 — when India went into a nationwide lockdown due to Covid-19 outbreak.

In fact, things are so dire that May was the worst month so far in the history of Indian markets, except the month when lockdowns started. In these five months, foreign investors have dumped Indian securities worth over $29 billion, as interest rates surged in the US and other developed countries around the world.

Out of the ₹3.15 lakh crore that foreign investors have pulled out since 2021, a selloff of ₹3 lakh crore happened between November 2021 and May this year.

Decoding the great foreign investor selloff of 2022

In November last year, the benchmark Nifty 50 index was hovering around its all-time high that it had touched just a few days back. Indian stock markets were on a high and so were investor sentiments, buoyed by a strong showing by IT giants like TCS and Infosys.


Since then, though, multiple issues plagued the markets, including profit booking since the markets were on a high at the time. With murmurs of Russia invading Ukraine doing the rounds, and the arrival of the Omicron variant of Covid-19 at the same time, markets lost their steam.

That kicked off a selloff by foreign investors, the likes of which India has never seen before.

The only two anomalies in the top 10 are January 2008 when the subprime mortgage crisis hit the US and the housing bubble burst — when the US actually did go into recession. October 2018 was another anomaly when the Indian markets were experiencing volatility.

Foreign investor selloff could continue in the short-term

If you have been wondering why your portfolio has been in the red for a long time now, it’s because the markets have been under tremendous pressure every month since November last year.

Experts believe this could continue in the short-term.

“Headwinds in terms of higher crude prices, rising inflation, tightening monetary policy etc. weigh on indices. Besides these, investors are worried about growth expectations while inflation remains elevated globally. Hence, we believe FPIs flows are likely to remain volatile in the near-term,” said Shrikant Chouhan, head of equity research (retail), Kotak Securities.

Nomura’s head of global research, Rob Subbaraman believes that a mix of different factors could spell trouble for emerging markets like India.

“The US Federal Reserve is currently hiking rates and will possibly hike quite aggressively in the coming months. We have slowing global growth and high commodity prices. Right now, it is a pretty unfavourable environment for EMs including India,” he said in an interview with the Economic Times.

Geojit Financial Services’ chief investment strategist VK Vijayakumar echoed similar sentiments.

“Rupee depreciation is adding to the concerns of FPIs. Dollar appreciation is broadly negative for emerging market equity. And this will continue to be a factor triggering FPI outflows from India,” he said.

SEE ALSO:

Foreign investors have pulled out more money this year than they brought in between 2009-2021

An Indian home can live for a year with the energy it needs to mine a single Bitcoin

Mukesh Ambani and Gautam Adani account for $1 out of every $5 of foreign loans