News

Published: Jan 25, 2023
Updated: Jan 25, 2023

Foreign Portfolio Investors withdraw funds from Indian Equities amid recession fears and Chinese market attraction

Foreign Portfolio Investors (FPIs) have pulled out a net amount of Rs 15,236 crore from Indian equity markets so far this month, due to concerns about the US economy entering a recession and the attractive Chinese markets. This marks a reversal from the net inflow of Rs 11,119 crore in December and Rs 36,239 crore in November.

FPIs turn to Chinese markets for value

FPIs have been driven to withdraw funds from India due to China's zero Covid policy, which led to the reopening of Chinese markets after lockdown, making them more appealing from a value standpoint. This caused FPIs to shift their focus from economies with relatively high valuations, like India, to China.

Persistent concerns about US economy entering recession

In addition to Chinese markets, concerns about the US economy entering a recession remain persistent, which was further supported by uninspiring US statistics, Srivastava said.

FPIs focus on cheaper markets

Despite the declining dollar, which is favourable for emerging markets, FPIs are investing heavily in cheaper markets like China, Hong Kong, South Korea and Thailand and selling in relatively expensive India, according to VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Sectoral Impact of FPI withdrawal

FPIs were big sellers in financials, IT and telecom sectors, while they bought significantly only in metals and mining. In addition to equities, FPIs have offloaded debt securities to the tune of Rs 1,286 crore so far this month.

Volatile FPI flows expected in India

Going forward, FPI flows are expected to remain volatile in India as macro indicators continue to be weak even as Indian equity markets turned hopeful ahead. Overall, FPIs pulled out Rs 1.21 lakh crore from the Indian equity markets in 2022 on aggressive rate hikes by the central banks globally, particularly the US Federal Reserve, volatile crude, rising commodity prices along with Russia and Ukraine conflict. 2022 was the worst year for FPIs in terms of flow and withdrawal from equities comes following a net investment in the preceding three years.