Thrashing their six-month buying spree, foreign investors turned net sellers in April and withdrew Rs 9,659 crore from Indian stocks, frightened by the intense second wave of coronavirus and its fallout on the economy.
If fears of COVID-19 increase among foreign investors, we may see further buybacks, which can lead to increased volatility in the market, said Harshad Chetanwala, co-founder of Mywealthgrowth.com.
According to data available from custodians, foreign portfolio investors (REITs) withdrew a net sum of Rs 9,659 crore from Indian stock markets in April.
It was the first net pullout since September 2020, when they removed a trickle of Rs 7,782 crore from the shares.
Prior to last month’s release, REITs invested over Rs 1.97 lakh crore in stocks between October 2020 and March 2021. This included a net investment of Rs 55,741 crore in the first three months of this year.
“There has generally been a slowdown in foreign inflows into emerging markets. Particularly in the case of India, the intense second wave of coronavirus and its fallout on the economy has led to some selling pressure from the share foreign institutions, “Gaurav Dua, SVP, Head – Capital Market Strategy, Sharekhan by BNP Paribas, said.
Chetanwala attributed the sale by the REITs to their nervousness about the second wave of the pandemic.
Brijesh Bhatia, senior research analyst at Equitymaster, said India was grappling with lockdowns due to the increase in COVID-19 cases.
“We saw the impact of foreclosure on the economy in 2020 when the GDP growth rate fell from 1.1% in Q1 2020 to -25.90% in Q2 2020. Uncertainty over the Rapid economic recovery is hampering, which is the main reason for the flow of money out of India, ”he added.
Selling by REITs is a short-term phenomenon and unlikely to pose a big risk as Indian equity fundamentals continue to remain strong, said Binod Modi, head of strategy at Reliance Securities.
He further said that any visible reversal in COVID-19 cases was likely to bring FPI flows back into stocks in the months to come.
Besides equity, REITs offloaded debt securities with a net worth of Rs 118 crore last month.
There has been no respite for the debt markets, with REITs being a net seller in the segment since January.
“Since the COVID-19 pandemic has spread to various countries and regions, foreign investors have become risk averse. Therefore, they have focused on safer investment options or safe havens such as the gold or the US dollar, rather than investing in fixed income securities of emerging markets like India, where the risks are relatively higher, ”said Himanshu Srivastava, senior research analyst at Morningstar India .
So far this year, REITs have invested a net amount of Rs 46,082 crore in stocks, but they have withdrawn a net amount of Rs 15,616 crore in debt securities.
Rusmik Oza, Executive Vice President, Head of Basic Research at Kotak Securities, said: “We are still a long way from registering peak cases, which means there could be more negative information flow on the market. COVID front “.
In addition, the sharp rise in the price of copper and steel to an almost ten-year high will be a cause for concern for the entire manufacturing sector, Oza added.
Going forward, Srivastava said the coronavirus, its spread and likely impact on the economy will continue to be closely watched by REITs while making investment decisions in India. With this in mind, they will gradually begin to focus on national economic indicators and on how the country manages its deficits in the future. “It remains to be seen how long it will take India to recover from this second wave, but we expect REIT investments to turn positive soon after the second wave shows signs of retreating,” said Harsh Jain, co-founder and COO Groww.