‘Outflow of Foreign Funds not a Good Sign for Economy’ Says Analysts

Mumbai: The rupee and the US dollar equation along with an uncertain domestic and global economic growth outlook have triggered a massive foreign fund outflow from the country’s capital market segment. “The outflow in just the last nine months is Rs 50,000 crore. The rupee and the US dollar equation was the major trigger. This is not a good sign for the Indian capital market,” said Astha Jain, Senior Analyst at Hem Securities. She added: “If the FII outflow continues the way it is now, the Sensex and Nifty will trade in a very tight range. We won’t see the indices hitting new highs.”

Accordingly, the outflow of foreign funds from the beginning of October has crossed the highest level in the last 12 months, data compiled from the stock exchanges showed. As per the provisional data from the stock exchanges, in just 13 trading sessions from October 1 onwards, foreign investors have sold stocks worth around Rs 19,500 crore. There have been only four occasions in over 10 years, when the foreign fund outflow, on a monthly basis has crossed Rs 19,000 crore. The outflow stands at Rs 19,433.57 crore. Analysts opined that outflows show a shift in the investment pattern from emerging economies to stable and high return assets like US securities. Deepak Jasani, Head of HDFC Securities told IANS: “Usually, the foreign investors are sellers from the first week of November to the first week of December, this time they have preponed it by a month because of weak macro situation of our country and the US Fed’s rate hike among other reason.” He also warned saying, “We do hope this rate of outflow halts, because if it does not... especially beyond one or two weeks, we are in for more worrying and turbulent time.”

Last month, the US Federal Reserve had raised its key interest rate by 0.25 percent for the third time in 2018. A rate hike by the US Fed generally drives away foreign funds from major emerging markets like India. Anuj Gupta, Deputy Vice President - Research - Commodities and Forex, Angel Brooking told IANS: “Its a sign that our economies outlook is not strong. Investors have perhaps found other areas of investment, for example, the US bond yield, which are giving better returns.” “Various reasons have played a part, the micro deterioration, uncertainty due to the election year too as a result of which capital markets will be down and the value of rupee will keep sliding.” (IANS)