DIIs salvage record breaking $26 billion FPI exit

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Last Updated31/05/2022

Mutual funds invested Rs 155,000 crore since October in the market.
Investors invested over Rs 10,000 crore through systematic investment plans (SIPs) of MFs every month.

Record outflows of Rs 201,500 crore ($ 26 billion) by foreign portfolio investors (FPIs) since October 2021.
- It is the biggest sell-off in the history of the Indian capital market.
A major crash in the markets was averted as domestic institutional investors (DIIs),
- Mutual funds pumped Rs 240,250 crore ($ 31 billion).
- The sustained selling by FPIs in the last 7.5 months have even overtaken the previous record sell-off by FPIs when Rs 116,250 crore, or 15 billion $ was pulled out during the global financial crisis between January 2008 and March 2009.

Covid pandemic (March 2020)
- FPIs pulled out over Rs 85,250 crore ($ 11 billion) from India.
- Markets pulled back and recovered later when the economy recovered from the impact of the Covid pandemic.
Reasons for Present sell off
- Relatively high valuations in India
- Inflation
- Rising bond yields in the US
- Appreciating dollar
- Possibility of a recession in the US
- Aggressive tightening by Fed policy

When the global economy took a hit.
Central banks across the world slashed interest rates and announced liberal monetary policies.
This helped the economies to recover, but
- Led to higher consumption
- The surplus liquidity in the financial system
This phenomena created higher than expected inflation.

Inflation rising to new levels in major economies like the US and Eurozone.
Central banks have started tightening the monetary policies and hiking interest rates.
Inflation in India surged to an 8 year high of 7.79 per cent in April
- Prompting the RBI to hike Repo rate by 40 basis points to 4.40 per cent.
Inflation has risen to multi-decade heights across several economies.
- The US CPI inflation was at around 8.3 in April.
- The CPI inflation in the UK surged to 7.0 per cent in March, the highest in the data series.
- Overall, Euro area annual inflation reached a new peak of 7.5 per cent in April primarily driven by energy and followed by food, alcohol and tobacco,
- Even among BRICS economies, inflation in China rose to a five-month high of 2.1 per cent in April as supply pressure worsened due to widespread lockdowns.
This has resulted in a sharp sell-off across financial markets worldwide since April.

Recently, there were signs of selling exhaustion by FPIs and DII and retail buying is emerging as a strong counter to FPI selling at higher levels.
The ownership of FPIs in Indian stocks has fallen by around two percentage points in the last two years to 19.5 per cent as of March 2022
The rupee has also fallen in the last one year, weighed down by rising inflation, interest rates, exit of foreign investors and plunging markets.