Snapping their three-month buying spree, overseas investors turned net sellers in Indian markets in September due to uncertainty ahead of the US presidential polls and surging coronavirus cases.
Foreign investors withdrew Rs 3,419 crore on net basis from Indian markets in September, according to depositories data. A net of Rs 7,783 crore was withdrawn from equities while the debt segment saw inflows of Rs 4,364 crore.
Foreign portfolio investors (FPI) adopted a cautious stance ahead of the US presidential election and renewed fears due to rising COVID-19 cases, among others, experts said.
FPIs had been net buyers in Indian markets in the three straight months to August. They had invested Rs 46,532 crore in August, Rs 3,301 crore in July and Rs 24,053 crore in June on net basis.
"FPIs have turned cautious ahead of the US Presidential election. Also, renewed fears of re-emergence and surge in coronavirus cases across countries have raised concerns about the possibility of fresh lockdowns being imposed in infected regions," said Himanshu Srivastava, associate director - manager research, Morningstar India.
In addition, amid the surge in equity markets over the last few months without any meaningful correction, and appreciation in the Indian rupee against the greenback, FPIs would have found this as an opportune time to book profit ahead of impending uncertainty, he added.
For investment in the debt segment, he said that amidst aggressive bond buying by the US Fed, the yields have come down, prompting FPIs to look for other attractive investment destinations like Indian debt markets which could potentially offer better returns.
As per Harsh Jain, co-founder and COO at Groww, since both the US presidential candidates have varying outlook towards national and international policy, investors are being cautious about future investments given the tension that has existed between China and the US over the past few years."
In the short term, until there is more clarity with regards to the US presidential election outcome, such volatility is expected to continue, Jain said.
However, in the longer term, due to quantitative easing, resulting liquidity and the attractiveness of the Indian market, inflows into emerging markets are expected to continue.