NEW DELHI: Overseas investors pulled out over Rs 83,000 crore from capital markets in 2018, after pouring in a record Rs 2 lakh crore in preceding year, on back of rate hikes in US, rise in global crude prices and rupee depreciation.Moreover, flows are expected to be range-bound in 2019 as FPIs may continue with a cautious stance until there are concrete signs of economic recovery and certainty over formation of a stable government after general elections, said Himanshu Srivastava, a senior analyst at Morningstar Investment Adviser.Foreign portfolio investors (FPIs) made a net withdrawal of about Rs 83,146 crore from Indian markets in 2018.
This comprises Rs 33,553 crore from equities and Rs 49,593 crore from debt market, according to data available with depositories.This was worst year for Indian capital markets in terms of overseas investment since 2002, last year for which segregated FPI data for equity and debt markets are available."Rate hikes in US and reshuffling of portfolio money across globe, rupee depreciation and crude rise were all contributors for higher FPI pull out," said Vidya Bala, head of mutual fund research at FundsIndia.com."India also lost to emerging markets in terms of foreign money allocation given lower valuations in other markets at beginning of 2018.
Added to this, uncertainty on domestic political front, ahead of an election year, may also have contributed to FPIs staying on sidelines," she added.Before 2018, FPIs were net buyers of Indian equities for six consecutive years.
They had made net inflows of over Rs 51,000 crore in 2017, Rs 20,500 crore in 2016, Rs 17,800 crore in 2015, Rs 97,000 crore in 2014, Rs 1.13 lakh crore in 2013 and Rs 1.28 lakh crore in 2012.Prior to that, FPIs had pulled out money from Indian stock market in 2011.
Before that, FPIs had turned net sellers in 2008.For debt market, FPIs made a net withdrawal of over Rs 43,600 crore in 2016, but it turned around in a big way in 2017 with a net inflow of Rs 1.5 lakh crore.Even in 2018, FPIs begun on a positive note by pumping in money, but trend got reversed soon amid weak global cues and introduction of long-term capital gains tax on equity investments.
After a brief recovery in March, sell-off continued for most part of year.Bajaj Capital CEO Rahul Parikh said, "The year 2019 will be first year since 2008 when globally, central banks will withdraw liquidity worth about USD 1 trillion.
Add to that escalating trade war between US and China and Brexit conundrum, and you have a near perfect recipe for a volatile 2019."Slowing corporate earnings growth, optically expensive index level valuations, concerns over bad asset quality in banks, slowdown of credit flow to NBFCs and uncertainty over outcome of general elections in 2019 will impact FPI inflows, he added.