FPIs take a breather; withdraw Rs 2,000 cr in first week of Aug

economictimes.indiatimes.com:

Indian equities in the first week of August, mainly due to Fitch downgrading the credit rating for the US. In addition, the rich and stretched valuations and minor profit booking could be the reasons for this outflow, Yes Securities Chief Investment Advisor Nitasha Shankar said. «A sharp spike in the US 10-year bond yield above 4 per cent is a near-term negative for capital flows to emerging markets,» Geojit Financial Services Chief Investment Strategist VK Vijayakumar said.

If the US bond yields remain high, FPIs are likely to continue selling or at least refrain from buying, he added. According to the data with the depositories, Foreign Portfolio Investors (FPIs) withdrew a net sum of Rs 2,034 crore from Indian equities during August 1-5. This came after unabated net inflow in the past five months — from March to July — following the resilience of the Indian economy amid an uncertain global macro backdrop.

Moreover, FPIs invested over Rs 40,000 crore each in the last three months (May, June and July). The net inflow was Rs 46,618 crore in July, Rs 47,148 crore in June and Rs 43,838 crore in May. Before March, overseas investors pulled out Rs 34,626 crore in January and February.

Himanshu Srivastava, Associate Director — Manager Research, Morningstar India, attributed the latest outflow to global credit ratings agency Fitch downgrading the credit rating for the United States to AA+ from AAA. This dented the sentiments, resulting in foreign investors turning cautious. To curb inflation, the US Fed raised its benchmark lending rate during its last meeting by 25 basis points, reaching its highest level since 2001.