Overseas investors withdrew Rs 2,249 crore from the Indian equities segment so far in July. The pull-out in the first seven trading sessions came after a month of net inflows.
This could be largely attributed to profit-booking by foreign portfolio investors (FPIs), with markets trading near record highs and investors choosing to stay on the sidelines, Morningstar India Associate Director (Manager Research) Himanshu Srivastava told PTI.
V K Vijayakumar, chief investment strategist at Geojit Financial Services, stated that it is important to appreciate the fact that overseas investors are not selling big. He further added that the continued rise in the dollar index has become a headwind for capital flows to emerging markets.
"This is because even though valuations are stretched, there are no signs of a major crash in markets. The sharp dip in the US 10-year bond yield to around 1.3 per cent has again tilted the market in favour of equity," said Vijayakumar.
The steady rise in the dollar index has become a headwind for capital flows to emerging markets, he further added.
Conversely, the debt segment saw a net inflow of Rs 2,088 crore between July 1 and July 10, as per the depositories data.
The total net outflow during the period under review stood at Rs 161 crore.
In June, FPIs became net investors to the tune of Rs 13,269 crore in Indian markets (equity and debt), after remaining net sellers in April and May.
Kotak Securities Executive Vice-President (Equity Technical Research) Shrikant Chouhan said the MSCI Emerging Markets Index has lost 3.9 per cent this week, overall.
"All key emerging markets and Asian markets have seen FPI outflows this month to date.
"Taiwan, South Korea, Thailand, Philippines and Indonesia saw month-to-date FPI outflows of $1,640 million, $991 million, $171 million, $89 million, $77 million, respectively," he said.
On the future of FPI investment, he said India is expected to remain vulnerable to US Federal Reserve's monetary policy and rising crude oil prices.
"Elevated crude oil price hurts India's external account, results in higher inflation and possible currency depreciation which can adversely impact foreign portfolio flows," Chouhan added.
Srivastava added that interim profit booking cannot be ruled out given high valuations, while dollar movement could also have an impact on the flows going ahead.
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