FII sell-offs in secondary market hit an 8-year high of $3 bn in 2016

09 Jan 2017

Foreign institutional investors (FIIs) have pulled out more than $3 billion from the country's secondary market in 2016, the highest in the last eight years in terms of foreign investments.

FIIs have been relentless sellers especially since the 9 November demonetisation of high-value bank notes in India and the US election result that boosted the dollar.

Market data show that FIIs were net sellers for the last 41 days since the 9 November demonetisation, except for four days when they bought shares – a factor that pushed the market low.

FIIs have offloaded equity shares worth Rs31,512 crore ($4.62 billion) in the Indian market.

With interest rates in India coming down and an expected rise in US rates, FIIs also exited debt instruments that were the preferred investment avenue for foreign funds in recent years.

While equities continued to attract net inflows these were not enough to offset the huge outflows from the bond market.

Foreign portfolio investors (FPIs) have purchased stocks worth about Rs20,566 crore in 2016, but sold bonds to the tune of more than Rs43,646 crore, resulting in net outflows of Rs23,080 ($3.2 billion), according to depository data.

The overall net outflow has made 2016 the worst year for Indian capital markets in terms of overseas investment since 2008, when FPIs had pulled out a massive Rs 41,215 crore in the wake of the global financial crisis.

The inflationary tendencies on the back of rising bond yields in the developed world bond market coupled with a resilient recovery in crude have led to profit booking.

Dollar strength and expectations of rate hike by the US Federal Reserve, the surprising US presidential outcome and the demonetisation drive, which created domestic cash crunch, sparked intense selling pressure in the capital markets, experts believe.