India’s July foreign fund outflow worst since 2002

There has been only four occasions since 2002, when the FPI Foreign Portfolio Investors) outflow had surpassed the Rs 11,743-crore-mark witnessed in July so far, all at a time of tight financial circumstances.

According to the National Securities Depository Limited (NSDL) data, the highest ever outflow came in the month of October, last year when foreign investors pulled out Rs 28,921 crore from India's equity markets.

Portfolio investment by a single investor or a group is upto 10 per cent of the equity of an Indian company. Beyond this it is treated as FDI.

India's July outflow is also the highest in the emerging markets followed by Brazil. This indicates that the investors have started to shift to other economies which could yield higher returns.

On the contrary, Kotak Institutional Equities showed that, South Korea, Thailand, Indonesia received healthy inflow of foreign funds in July.

The year when the 2008 global financial crises hit global financial markets, FPIs in the month of January had pulled out Rs 13,035.6 crore from the equity segments of the markets.

A toxic mix of factors like weak macro situation of our country, US Fed's rate hike, high oil prices, weak dollar rupee equation and ongoing US-China trade tension caused the heavy outflow in October, 2018.

The foreign fund exodus in July, this month comes at a time of a marked slowdown in economic activity and a controversial tax surcharge on super-rich, adversely impacting FPIs.

"Domestic economy hit a soft patch in the last quarter of 2018-19 as private consumption, the key driver of GDP, turned weak. This along with subdued new investment pipeline and a widening current account deficit have exerted pressure on the fiscal front. This has implications for the government's market borrowing programme and market interest rates," RBI's Systemic Risk report said.

"Reviving private investment demand remains a key challenge going forward while being vigilant about the spillover from global financial markets," it added.

During 2018-19, FPI investments in India witnessed a significant decline as compared to the previous year. FPIs net sold Rs 38,930 crore worth of Indian equity and debt securities during 2018-19, as compared to net investment of Rs 1,47,117 crore in 2017-18.