How was the foreign portfolio flows in the first two weeks of the month of February 2022?

The selling by foreign portfolio investors continues to be virtually relentless. For the first two weeks of the month of February 2022, the FPIs withdrew Rs.14,935 crore from Indian markets. Incidentally, the FPIs have already been net sellers each month since October 2021 and in the month of Jan-22 alone they sold more than $4.5 billion just in equities. For first half of Feb-22, FPI selling included Rs.10,080 crore selling in equities and Rs.4,830 crore in debt and other hybrid instruments.

There was a surge in FPI selling after Fed spoke about a series of rate hikes to combat the 7.5% inflation in the month of Jan. While the rate hikes are expected to start in March, after the taper completion, Goldman Sachs has now pencilled that the Fed may be inclined to raise rates 7 times in the current calendar year and the total quantum of rate hike may be in the region of 200 bps to 225 bps, which would be a substantial front-ending of rate hikes.

It is not just about bond yields, inflation and Fed interest rates. It is also about relative valuation of Asian emerging market peers compared to India and in this case India appears to be substantially overweighted by most of the institutional investors. This is evident from the flows data. Among Asian emerging markets, Thailand, Indonesia and South Korea reported robust equity inflows of $1,155 million, $580 million and $477 million respectively.