Overseas investors pulled out a massive Rs 210 billion ($3 billion) from the capital markets in September, making it the steepest outflow in four months, on widening current account deficit amid global trade tensions. 


The latest withdrawal comes following a net infusion of close to Rs 52 billion in the capital markets (both equity and debt) last month and Rs 23 billion in July.  


Prior to that, overseas investors had pulled out over Rs 610 billion during April-June.


According to the latest depository data, foreign portfolio investors (FPIs) withdrew a net sum of Rs 108.25 billion from equities in September and Rs 101.98 billion from the debt market, taking the total to Rs 210.23 billion ($3 billion).


This was the highest outflow since May, when FPIs had pulled out Rs 297.75 billion. FPIs never fully returned to the Indian equity markets after pulling out net assets worth Rs 610 billion during the quarter ended June 2018.


Although they net bought assets to the tune of Rs 75 billion cumulatively in July and August, the quantum of inflows was much lower than what was seen in the past when they invested with full conviction.


This indicates that there has been a fair bit of uncertainty and cautiousness among FPIs investing in the Indian equity markets in the recent times, experts said.


The outflow in September was due to global trade tensions, widening current account deficit on the back of surge in oil prices, depreciating rupee, concerns over the government's ability to meet fiscal deficit targets and lower than expected GST collection, said Himanshu Srivastava, Senior Research Analyst at Morningstar.


"All these factors deteriorated the country's macro environment. It has also cast a doubt on the sustainability of the economic growth which is closely watched by the FPIs. This coupled with expensive valuation triggered a sell-off from FPIs in September," he noted.


Additionally, given the global trade tensions, there has been risk-aversion among foreign investors which explains their cautious stance towards emerging markets like India, which are considered to be riskier than their developed counterparts, he added.


So far this year, FPIs have pulled out over Rs 130 billion from equities and more than Rs 480 billion from the debt markets.