Kolkata: Long-term overseas investors have withdrawn a record $5.4 billion from Indian equities in February, raising concerns that a significant number of companies may also have offloaded their direct investments in the country in the current bout of exits.
Reserve Bank of India’s (RBI) monthly data showed that the outflows were due to repatriation or disinvestment.
“This is a massive outflow in a single month and hence it needs to be monitored,” CARE Ratings chief economist Madan Sabnavis said. Repatriation was to the tune of $3.2 billion in November 2020.
“FDI outflows through equity are worrying as these mean companies have been taking out their capital and investing in their home country where there are better prospects. My sense is this would be industry specific and not generic,” Sabnavis said.
Repatriation was to the tune of $25 billion between April 2020 and February this year, compared with $17 billion in the same period a year ago, RBI data showed
“One possibility of this massive outflow in February could be that investors took advantage of the buoyant equity markets that touched an all-time high around that time and sold off some of their holdings,” said Devendra Kumar Pant, chief economist at India Ratings & Research.
The benchmark Indian stock market index Nifty50 was at a peak of 15431.75 on February 16.
“As long as it is a one-off incident, it may not be a major concern. If it becomes a trend, then it would impact the country’s foreign exchange reserves and the rupee valuations. Repatriation of this size does not convey a good picture to overseas investors,” Pant said.
Gross foreign direct investment (FDI) inflows in February also dipped to $4.3 billion compared with $5.4 billion in the same month last year, failing to offset the record outflows. So, there was a net $1 billion outflow in February.
Indian companies have made investments worth $1.8 billion in overseas entities in the same month, making the net FDI outflow at $2.8 billion, compared with $2.7 billion inflows over the same period.
At the same time, portfolio investors have also raised their stakes in February as they pumped in $2.8 billion, in line with the rise in stock market indices.