Foreign portfolio investors have offloaded equities worth around Rs 3,000 crore in just three trading sessions of October amid fears of global recession and trade war.
This follows a net investment of around Rs 7,850 crore by foreign portfolio investors (FPI) into equities in September.
Market experts, however, believe that FPI inflows are expected to pick up after the rate cut by the Reserve Bank of India (RBI) and several decisions taken by the capital markets regulator Securities and Exchange Board of India (SEBI).
The central bank on Friday cut benchmark repo rate by 25 basis points to 5.15 per cent. The interest rates cut is for a record fifth straight time to almost a decade low.
According to the depositories data, overseas investors pulled out Rs 2,947 crore from equities and Rs 977 crore from debt segment on a net basis. This resulted into a total net outflow of Rs 3,924 crore from the Indian capital markets during October 1-4.
Markets were closed on October 2 on account of Gandhi Jayanti.
In the last week of September, the government slashed corporate tax rate by around 10 percentage points and also clarified that the enhanced tax surcharge will not apply on capital gains arising from sale of any security, including derivatives, in the hands of FPIs.
Besides, SEBI has simplified know-your-customer (KYC) requirements for FPIs and granted them permission to carry out off-market transfer of securities.
The outflow in October is on "account of fears of a global recession, trade war and a slowdown in India. FPI inflow is expected to improve on expectations of good corporate earnings in third quarter, but is likely to remain muted due to global economic and trade war concerns. The market shall be supported by domestic investors, " Arun Mantri, senior manager at Karvy Stock Broking said.
However, interest rate cut by Reserve Bank of India (RBI) is good for growth and should result in higher foreign inflows, he added.
Commenting on the future outlook of FPI flows, Alok Aggarwala, head research and advisory at Bajaj Capital, said "it will be influenced by how the economy performs and how soon corporate earnings recover. The US Fed's monetary stance and global liquidity will also be crucial in determining FPI flows".