Foreign portfolio investors (FPIs) have pulled out a record $25 billion (₹2.07 lakh crore) from the Indian stock market over the trailing 12 months, capping the year-long sale by dumping equities worth ₹7,624 crore in September.

This year-long sale has negated the ₹1.96 lakh crore net inflows seen over 2020 and 2021. On a calendar year basis, the outflow for nine months stood at ₹1.68 lakh crore, an all-time high ever since foreign portfolio investors began investing in India. Over the past 15 years, besides 2022, the other three years of net outflows were: 2008 (₹52,987 crore), 2011 (₹2,714 crore) and 2018 (₹33,014 crore). In fact, the outflow of the current calendar year is nearly twice (1.9x) that of the cumulative outflow seen over 2008, 2011 and 2018.

The pull-out comes amid a decline in the Nifty by just 597 points from 17,691 to 17,094. However, during this period, the benchmark index hit a high of 18,308 in January 2022. Since then, the 50-stock index has been hitting new lows amid a sharp interest rate reversal in India and the US.

In fact, over the past 12 months, the selloff has accentuated the decline in the local currency, which fell nearly 10% from ₹74.255 (Oct 1, 2021) to ₹81.863 (Sept 30, 2022), as per data from the National Securities Depository.

Since October 2021, when the US Fed sounded the alarm bells and began embarking on rate tightening spree, rising yields back home have prompted foreign investors to seek the safety of the dollar even as India had to grapple with the fallout of a fiery inflation, led by a spike in crude oil prices. But more than India, inflationary pressures in the US – for the first time in 40 years – have resulted in the Fed reversing its easy money policy.

The only two months when FPIs bought Indian stocks was July and August of 2022, resulting in a combined inflow of ₹56,193 crore. The remaining 10 months saw cumulative outflow of ₹2,07,310 crore. In fact, foreign investors have already incurred a loss of 3.5% on the investment made in the two months as the currency fell from ₹78.942 (July 1) to ₹81.863 as of September 30.

Given that the dollar index is hovering around 112 and the US 10-year bond yield – seen as a global benchmark for debt – is trading above 3.78%, foreign investors are unlikely to rush back to Indian equities. With the US Fed unlikely to relent on its rate tightening spree, the last quarter of the year will be decisive in determining which way the numbers will swing.

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