Foreign investors have pulled out over Rs 9,300 crore (USD 1.3 billion) from the Indian capital markets in the last four trading sessions on unabated fall in rupee and rise in crude oil price.
The latest withdrawal comes following a net outflow of over Rs 21,000 crore from the capital markets (both equity and debt) last month. Prior to that, they had put in a net amount of Rs 7,400 crore in July-August.
According to the latest depository data, foreign portfolio investors (FPIs) withdrew a net sum of Rs 7,094 crore from equities during October 1-5, and Rs 2,261 crore from the debt market, taking the total to Rs 9,355 crore (USD 1.3 billion).
FPIs have been net sellers almost throughout this calendar year except a couple of months. However, the swiftness of the exit in October thus far has shaken the market, experts said.
"Rise in oil prices and US treasury yields and a tightening of global dollar liquidity are the key reasons for the FPI selling as they have induced high volatility in currency, bond and equity markets.
"One must however remember that this is a global phenomena across emerging markets and not limited to India alone. Of course, the impact of rise in oil prices is higher for India as it imports most of its oil requirements. The matter was further exacerbated by the IL&FS default and the rout in NBFC debt papers," said Alok Agarwala, Senior Vice President and Head Investment Analytics at Bajaj Capital.
Making a similar point, Vidya Bala, Head of Mutual Fund Research at FundsIndia, said rising rates in the US, strengthening dollar and higher US earnings have been triggers for money moving out of India and other emerging markets to the US.
"While these have been the primary factors for the pullout, locally, rising oil price and oil marketing companies absorbing price cuts, the recent spate of management-related issues in banks and tightening liquidity in NBFCs have been immediate triggers," she added.
She further said the volatility can be expected to continue for other reasons too, like US sanctions on Iran which take effect in November. Iran is a major source of crude oil for India.
"India also has some key state elections coming up, which could provide cues to FPIs for next year's central elections," Bala added.
So far this year, FPIs have pulled out over Rs 20,000 crore from equities and more than Rs 50,000 crore from the debt markets.