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.