Market watch: Foreign investors’ sell-off should worry us

Foreign portfolio investments (FPI) have traditionally been a barometer of confidence in the market. Thus, that the net FPI in the first five months of the year was an outflow of Rs 32,077 crore does not augur well.

Breaking it down, the net outflow on equity in three of the five months was Rs 1,600 crore. FPI registered an outflow of Rs 30,465 crore in four out of the five months on debt.

If one were to look at the net outflow of FPI in equity over the last five years, February and May of 2018 are among the worst, with Rs 11,423 crore and Rs 10,060 crore of net outflow respectively. This is the fourth and seventh worst performance in the last five years.

The net outflow of FPI in debt in May (Rs 19,654 crore), April (Rs 10,036 crore), and March (Rs 9,044 crore) were the third, seventh, and the tenth worst in the last five years.

If one were to consider the first five months over the last 10 years, foreign portfolio investors were net sellers of equity in 16 of the 50 months, and February, May, and April register as the first, third, and the seventh month with negative flows. On debt, 17 of the 50 months registered negative flow in FPI. May of this year was the worst during the period; April and March recorded the second and the fourth worst.

With interest rates peaking, the concern is higher on the debt front. Given that 2017 saw a net FPI inflow of Rs 1,18,251 crore (equity inflow: Rs 49,736 crore, and debt inflow: Rs 68,515 crore), the net outflow of Rs 32,077 crore so far this year is worrying.