Overseas investors have pulled out close to Rs 5,900 crore from domestic equities this month, with widening fiscal deficit and higher crude prices making market participants cautious on macro-economic front.
In spite of December performance, foreign portfolio investors (FPIs) ended the year with a net inflow of over Rs 51,000 crore.Market experts, however, believe FPIs may not be able to repeat this showing in 2018 as withdrawal of liquidity and rate hikes in developed economies pick up.According to the depositories data, FPIs withdrew a net Rs 5,883 crore from equities during December.
However, such investors had put in Rs 2,350 crore in the debt markets during the period under review.The outflow comes following an eight month high inflow of Rs 19,728 crore in November, mainly on account of the government's plan to recapitalise PSU banks and surge in India's ranking in the World Bank's ease of doing business.This also marked the highest net investment by FPIs since March, when they had poured in Rs 30,906 crore in the equity market.
"Rising crude prices and widening fiscal deficit have prompted them to adopt a cautious stance. In addition to that, appreciating rupee and rising domestic markets too provide a good profit booking opportunity to them, especially before Christmas and New Year," said Morningstar India's senior analyst manager (research) Himanshu Srivastava.
Overall, it has been a tremendous journey for the Indian equity markets in the calendar year 2017. After taking a break from buying into Indian equities in the months of August and September and returning cautiously in October, FPIs' bought Indian equities in abundance in the month of November. However, they withdrew funds in this month.
India ended 2017 being among the best-performing markets globally. South Korea, which clocked 37.2 per cent returns in dollar terms, led the pack.In dollar terms, the Sensex was up 36.2 per cent and the Nifty 37 per cent. During the year, India’s weight in the MSCI EM (emerging markets) index went up by 47 basis points to 8.72 per cent. India’s weight in the MSCI space now is about 50 basis points higher than at the peak of the previous bull run in 2007.
In absolute terms, the year closed with the market capitalisation of all BSE-listed companies rising by Rs 45.5 lakh crore to Rs 152 lakh crore, or an increase of 42.8 per cent compared to the closing value on December 30, 2016. These gains, however, include the market value of companies that got listed on the bourse during the year, such asHDFC Life and Avenue Supermarts (DMart).
Market participants said strong support from local and foreign institutional investors had caused a gush of liquidity, helping stocks climb to their lifetime highs. Buoyed by strong inflows into systematic investment plans (SIPs), mutual funds have purchased equities (net of sales) worth Rs 1.17 lakh crore during 2017. Foreign portfolio investors (FPIs) bought Indian equities worth Rs 51,492 crore (close to $8 billion).
"Given 2019 would not be far, the expectation of some other economic reforms from the government would be high. But the major for FPIs going ahead would be to see growth coming back in the domestic economy, which has not yet picked up contrary to the expectation," Srivastava added.