Foreign investors pulled out close to $6 billion from the capital market in November as anxiety gripped players over the impact of demonetisation amid mounting global concerns. Net withdrawal by foreign portfolio from equities stood at Rs 18,244 crore last month while the same from the debt market was Rs 21,152 crore during the period under review, translating into total outflow of Rs 39,396 crore ($5.78 billion), according to exchange data.
The FPI outflows come following withdrawal of more than Rs 10,306 crore on net basis from the capital market (equity and debt) last month. Prior to that, equity segment had witnessed inflows of over Rs 20,000 crore.
This year so far, FPIs have invested a net sum of Rs 28,742 crore in stocks while they pulled out Rs 24,710 crore from the debt market, resulting in a combined net inflow of Rs 4,032 crore.
Dealers said domestic cash crunch following the demonetisation drive to curb black money has sparked intense selling pressure. Sentiment soured after November manufacturing PMI decelerated sharply as cash drought slowed domestic consumption, production of goods and new orders. Also, market participants are keenly watching Italy's constitutional referendum on Sunday, which could determine whether the country will remain in the euro zone or not.
The pullout by FPIs started in October 2016 following uncertainty over U.S. election results and was felt across emerging markets.
"This was further aggravated in November due to several factors – the uncertainty over U.S. ties with the emerging markets post Trump victory, the near-term impact on corporate earnings, and economic growth from demonetisation in the near term and impact of GST on companies' cash flows," FundsIndia.com Head of Mutual Fund Research Vidya Bala said.
"In the debt market, FPIs have been net sellers in seven out of 11 months thus far. The rally in the Indian government securities and the decreasing spread between U.S. interest rates and India could be a reason; FPIs book profits in the gilt rally in India," she added.
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