Continuing its selling spree for the eighth consecutive month, foreign investors withdrew nearly 40,000 crore rupees from the Indian stock market in May on fears of an aggressive rate hike by the US Federal Reserve that rattled investor sentiment. With that, net equity outflows from foreign portfolio investors (REITs) reached Rs 1.69 lakh crore so far in 2022, according to custodian data.

Going forward, REIT flows will remain volatile in emerging markets due to rising geopolitical risk, rising inflation, monetary policy tightening by central banks, among others, Shrikant Chouhan said. , Head – Equity Research (Retail), Kotak Securities.

According to the data, foreign investors withdrew a net amount of Rs 39,993 crore from the shares in May. This massive exit is the main factor of weakness in the Indian market.

Himanshu Srivastava, Associate Director – Manager Research, Morningstar India, attributed the latest selloff to concerns about the outlook for a more aggressive rate hike from the US Fed.

The US Fed has hiked rates twice this year to combat soaring inflation caused by supply chain disruption due to the war between Russia and Ukraine.

“Additionally, there are concerns about uncertainty over the ongoing military conflict between Russia and Ukraine impacting crude prices. Overall, rate hikes by the US Federal Reserve, the monetary policy tightening by global central banks and the appreciation of the foreign currency dollar has prompted foreign investors to dump stocks in sensitive markets,” said Manoj Purohit, Partner and Head – Financial Services Tax, BDO India. According to Srivastava, investors are also cautious due to fears that high inflation could hamper corporate profits and also impact consumer spending. These factors, along with the ongoing war between Russia and Ukraine, could further dislodge global economic growth.

On the home front too, concerns over soaring inflation as well as further rate hikes by the RBI, and its impact on economic growth, weighed heavily, he added.

Foreign investors have withdrawn money from the shares over the past eight months (October 2021 to May 2022), withdrawing a massive net amount of Rs 2.07 lakh crore.

However, there are signs of exhaustion in REIT sales. In early June, REIT sales are in very small amounts, said VK Vijayakumar, chief investment strategist at Geojit Financial Services.

June’s selloff could be attributed to rising inflation risk and rising crude oil prices, Kotak Securities’ Chouhan said.

“If the dollar and US bonds stabilize, REIT selling should halt and may even reverse. On the contrary, if US inflation remains high and dollar and bond yields continue to rise, REITs could resume selling. US inflation data is key,” Vijayakumar said.

In addition to equities, REITs withdrew a net amount of around Rs 5,505 crore from the debt market during the period under review. They have been steadily withdrawing money from the debt side since February.

Besides India, other emerging markets, including Taiwan, South Korea, Indonesia and the Philippines, saw releases in May.

Also read: REITs pull Indian stocks worth over Rs 35,000 cr in May so far