The relentless march of FPIs to the exit gate

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The relentless march of FPIs to the exit gate

  • June 2022 witnessed the worst sell-off of Foreign Portfolio Investors (FPIs) since March 2020.

What are FPIs?

  • Invest funds in markets outside of their home turf.
  • Investments include: Equities, bonds and mutual funds.
  • Not active shareholders and do not exert any control over companies whose shares they hold.
  • Passive nature of their investment allows them to enter or exit a stock at will and with ease.

Why have FPIs been selling India holdings?

  • Uneven Post-pandemic recovery
  • Supply shortage: Pace of recovery post-pandemic caught suppliers off guard, contributing to supply-side shortages.
  • Russia's invasion of Ukraine: Rise in prices of Sunflower, wheat supplies etc.
  • Inflation: Supplies tightened across the globe, commodity prices rose and overall inflation accelerated.
  • Unstable Industrial production
  • Hike in interest rate by U.S. Federal Reserve
  • Risky markets: Investors exit assets seen as ‘risky’ such as in emerging markets like India, Brazil or South Africa.
  • Depreciating rupee against dollar

Impact of FPI sell-off

  • Value of Local currency (Rupee) declines.
  • More funds are needed to import the same unit of goods.
  • Impact on the cost of crude oil imports is significant that contributes to 85% of our oil needs.