FIIs pull out $10.5 billion from Indian capital market in June-July

Foreign investors have pulled out a staggering over Rs 62,000 crore ($10.5 billion) from the Indian capital market in the past two months amid concerns about the depreciating rupee.

Market analysts expect selling pressure by foreign institutional investors (FIIs) to continue in the near term. FIIs had withdrawn Rs 18,124 crore ($3 billion) from the debt and equities markets in July after pulling out a record Rs 44,162 crore ($7.5 billion) in June, according to data available with Sebi.

More than Rs 45,000 crore ($7.7 billion) were pulled out from the debt market in June and July, while over Rs 17,000 crore ($2.8 billion) were withdrawn from equities.

Weakness in the Indian currency was instrumental in overseas investors exiting the capital markets as the rising cost of hedging a volatile rupee hurts the yield differential the FIIs work with, according to market experts.

The rupee slumped to a record low of 61.21 (intra-day) against the US dollar on July 8. Since April 30, the rupee has crashed over 10 per cent. The currency settled at an all-time closing low of 61.10 against the dollar on Friday.

Concerns about the US Federal Reserve withdrawing its stimulus have also affected emerging markets, including India, which have witnessed huge outflows.

"There is no incentive to invest in the India market at this point of time. The depreciation of the rupee has become a big concern for foreign investors," an analyst said.

FIIs had been aggressive buyers of bonds and equities in the first five months of 2013 on account of higher yields offered by the government and corporate debt and good returns given by equities.

So far this year, foreign investors have pulled out a net Rs 21,884 crore ($3.33 billion) from the debt market, while foreign investment in the country's equity market is a net Rs 66,550 crore ($12.5 billion).

As of August 2, there were 1,756 registered FIIs in the country and 6,402 sub-accounts.