FPIs withdrew Rs 18,856 crore from Indian markets in February so far

Foreign Portfolio Investors (FPIs) have withdrawn a net
Rs 18,856 from the Indian markets in February so far amid geopolitical tensions
and an expected interest rate hike by the US Federal Reserve.

According to depositories data, foreign investors
withdrew Rs 15,342 crore from equities and Rs 3,629 crore from the bonds market
from February 1 to 18. At the same time, they invested Rs 115 crore in hybrid
instruments, as reported by PTI.

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Foreign funds have been flowing out for the fifth
consecutive month.

In recent times, rising geopolitical tension and chances
of an interest rate hike by UD Federal Reserve has prompted outflows from FPIs
from the Indian equity markets, said Himanshu Srivastava, Associate Director
& Manager Research at Morningstar India. They sharply increased the selling
pace after the US central bank indicated an end of the ultra-loose monetary
policy regime, he added.

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As tensions flared between the US and Russia over
Ukraine, investors moved into defensive sectors and safe-havens, such as gold
and bonds, Shrikant Chouhan, Head Equity Research (Retail) at Kotak Securities
told PTI.

In the last year, FPIs net outflow from the Indian equity
market is around USD 8 billion, which is the highest since 2009. FIIs have sold
worth close to Rs 17,500 crore in February till date. According to FPIs, India
has already considered earnings growth of 16-18% CAGR for FY23 and FY24, based
on expectations of an earnings and economic growth cycle.

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FPIs are likely to sell more going forward unless market
corrections make valuations attractive, said V K Vijayakumar, Chief Investment
Strategist at Geojit Financial Services.

He added that domestic investors and HNIs are slowly
accumulating high-quality financials whose valuations have turned attractive
due to sustained FPI selling.

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Rajesh Bhatia, MD and CIO at ITI Long Short Equity Fund
said, “Yet these estimates don’t account for risks of the rising cost of
capital in the US (India’s cost of capital is linked to US cost of capital) and
therefore PE contraction potential, nor of inflation risk hurting earnings
growth estimates”.