FPIs net outflow of $3bn termed worst in 8 years

The biggest impact was felt by debt instruments.

The Dollar Business Bureau

The Indian capital market witnessed $3 billion of the so-called “hot money” being taken out by foreign investors in 2016 signifying the worst period for foreign investments in the last eight years.

The biggest impact was felt by the debt instruments after being the chosen form of investment for foreign funds in recent years. The equities continued to be a part of the net inflows but could not make up for huge outflows from the bond market.

According to experts, India can expect a likely respite from the low foreign investment climate in the second half of 2017.

Going by the depositories data, Foreign Portfolio Investors (FPIs) bought stocks to the tune of Rs 20,566 crore in 2016, but sold bonds of more than Rs 43,646 crore, thus leading to net outflows of Rs 23,080 ($3.2 billion).

In 2008, the global financial crisis led to the FPIs pulling out a massive amount of Rs 41,215 crore after which 2016 has become the worst year for Indian capital markets in terms of overseas investment.

The inflationary tendencies on account of increasing bond yields in the developed world bond market along with a good recovery in crude have led to profit booking.

The experts are also of the view that an intense selling pressure in the capital markets was built up on the back of dollar strength and expectations of the rate hike by the US Federal Reserve, the surprising US presidential outcome and the demonetisation drive.

"Massive pull out of FPI investment, particularly in debt, happened during the last two months, particularly after the Donald Trump victory. This FPI pullout is an emerging market phenomenon, not an Indian phenomenon. The selling in debt is due to the market expectation of sustained Federal rate hikes starting December 2016," Geojit BNP Paribas' Chief Investment Strategist V K Vijayakumar said.

The Dollar Business Bureau - Jan 09, 2017 12:00 IST