Foreign portfolio investors (FPIs) have pulled out Rs 3,741 crore from the Indian markets in just three trading sessions of July, which market analysts attributed to profit booking and appreciation in the rupee over the last few weeks.
The depositories data showed that FPIs withdrew a net sum of Rs 3,959 crore from the equities but invested a net Rs 218 crore in debt segment between July 1-3.
This translated into a total net withdrawal of Rs 3,741 crore during the period under review.
The latest withdrawal has come after investment of Rs 24,053 crore by FPIs in domestic markets in June. FPIs turned net buyers after remaining net sellers for three consecutive months.
"Markets performing well in the recent times, and some appreciation in rupee over the last few weeks, have provided a good profit booking opportunity to foreign investors, which they decided to capitalise on," Himanshu Srivastava, associate director-manager research at Morningstar India said.
FPIs have been actively trimming their holdings in some stocks and the value of which they find unattractive while they continue to invest in stocks that have reached very attractive valuations in the last 3 months, Harsh Jain, co-founder and COO at Groww, said.
They are also showing a clear inclination towards financial stocks while they're consistently reducing their exposure to the communication sector, Jain added.
With respect to investment in debt segment Srivastava said "the scenario is showing signs of normalising".
Decision of US Federal Reserve to initiate a dedicated corporate bond buying programme to lift their local economy could enhance the flow of foreign funds into India, which is expected to perform better in terms of generating returns as against the comparable markets over the next year or so, he added.
The Indian financial markets will continue to witness rotational trend with respect to foreign flows. Bouts of net inflows and outflows are expected by FPIs depending on their changing opinion and global trends, he noted.
Globally the scenario is evolving and there are multiple factors which are dictating the direction of foreign flows.
On the domestic front, the challenges with respect to rising COVID-19 cases and recovery of economic growth remains. While these will be the deterrent for foreign investors, there are certain technical factors which would tend to ensure the continuity of foreign flows into the country from time to time.