India, which was the hottest market for foreign investments in 2023, is now showing signs of a quick reversal, Elara Capital noted, adding that the current levels of FII outflows from India are comparable to the 2008 financial crisis period. Foreign funds have started pulling money out of India-dedicated funds for the first time since March 2023, with the fastest pace of outflows seen since the Russia-Ukraine crisis in 2022, the brokerage noted in its report.
Over the last five weeks, a total of $575 million have been pulled out of India-dedicated funds, Elara Capital said. Out of the $575 million, a total of $360 million was redeemed from largecap funds, while $215 million was withdrawn from mid-cap funds.
“Post the US election, we saw a 7-week large inflow of $33.5 billion in US funds. Flows into US funds have been strong over the past five weeks going into the election. Post the election results, the US and Europe are two regions where foreign flows are strong. Foreign-domiciled U. funds saw a 12-week large inflow of $5.7 billion. In Europe, foreign flows were strong in the UK and Switzerland,” said Elara Capital.
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In the last five weeks, US-domiciled funds have pulled out $385 million from India, which makes up 70% of total India outflows. Ireland funds have pulled out $240 million. Meanwhile, Japanese funds have still not started taking out money, however, inflows have stopped for the first time since August 2023.”India-dedicated foreign flows as a percentage of free float market cap have started dropping; this is visible for the first time in this cycle, which began post-COVID. A similar reversal in April ’10, June ’15, and January ’18 had been a leading indicator of weaker market trends going ahead,” said the brokerage.The brokerage also noted that foreign fund flows into China turned negative over the past two weeks, with $2 billion in outflows after $19.2 billion in inflows in the previous five weeks. Out of the $2 billion outflows from China, $800 million was from US-based funds. A similar trend is visible in Japan, where US funds have pulled out $320 million in two weeks, out of total outflows of $720 million.
Elara Capital underscored that since 2000, there have been 22 months where India experienced comparable or stronger FII outflows, with seven of these instances occurring during the 2008 global financial crisis period.
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