In a recent startling development, foreign portfolio investors (FPIs) have initiated a massive withdrawal from the Indian stock market, causing a notable downturn.
Foreign Investors Withdraw Funds
FPIs have pulled out a whopping Rs 20,479 crore (approximately $2.46 billion) from the market in just two days. This move resulted in a significant 2.6% decrease in key market indices. FPIs sold stocks worth Rs 10,578 crore on Wednesday alone, followed by a withdrawal of Rs 9,901.56 crore on Thursday, according to BSE data. This massive sell-off is a primary factor behind this week’s market crash.
Reasons Behind the Sell-off
The trigger for this exodus appears to be the uncertainty surrounding the US Federal Reserve’s decision on interest rates. The sell-off gained momentum after comments from Christopher J Waller, Governor of the Federal Reserve System, suggested a potential delay in rate cuts.
This development altered investors’ expectations, anticipating a rate reduction starting in March. Foreign investors’ preference usually shifts towards the US when domestic yields rise, policy rates stay elevated, and Indian stocks seem overvalued. The recent crossing of the US yield over the four percent mark has raised alarms in emerging markets like India.
Domestic Market’s Response
The Indian stock market felt the impact immediately. The BSE Sensex plunged by 1,628 points on Wednesday, followed by a further drop of 313.90 points on Thursday. Similarly, the Nifty experienced a decline. The market couldn’t be buoyed despite domestic institutional investors purchasing stocks worth Rs 9,900 crore in these two days.
FPI Trends and Future Outlook
FPIs have shown a pattern of volatility in their investments over the past few years. The year 2023 saw a significant turnaround with FPIs infusing $28.7 billion into the Indian market, the highest since 2017. However, this influx was marked by fluctuating trends throughout the year, influenced largely by global economic policies, especially Federal Reserve ones.
The current hawkish stance of the Fed suggests a delay in rate cuts, which has jolted market expectations and led to the recent FPI pullout. The influence of the Fed’s policies on emerging markets, including India, remains a key factor in the movement of FPI funds.
