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'Hot money' evaporates from Indian capital markets in 2018

Monday, December 17, 2018
By Shilpi Pandey

Outflow nears Rs 1 lakh crore

Foreign investors' portfolio investments have long been known as 'hot money' that comes in fast but can go out even faster and it is the outward journey that seems to be the underlying theme for the Indian capital markets as 2018 draws to a close, with net outflows nearing the Rs 1 lakh crore mark.

This could make 2018 the worst year in terms of foreign portfolio investments in the Indian capital markets and follows a record net inflow of about Rs 2 lakh crore into equities and debt securities in 2017, as per data available with the depositories and exchanges.

As of now, the foreign portfolio investors (FPIs) have made a net withdrawal of about Rs 87,000 crore from the Indian markets with about a fortnight of trading remaining.

Analysts warn the trend may continue in the wake of negative sentiments about possible changes in the regulatory framework after the sudden exit of the RBI governor and the emerging political scenario.

Marketmen feel FPIs have stamped their influence very strongly this year after their stiff resistance to proposed changes in norms for recording beneficiary ownership of their funds forced regulators to have a re-think and eventually change the rules.

FPIs are among the largest shareholders in several listed blue-chips in India, especially in the banking and financial services sectors, while their overall average holding of listed Indian companies is estimated at around 25%.

This is one of the biggest holdings after promoters, who typically own an average of about 60% stake in listed Indian firms and the rest is divided among various domestic institutional investors such as mutual funds, insurers, pension funds and corporates, as also HNIs and small retail investors.

While FPIs have been among top non-promoter shareholders for a long time, their influence has now stated coming into play in a big way and they have been guiding overall market movements by playing the role of bellwether shareholders.

The worrying part is the Indian market lost its attractiveness among FPIs in 2018 with debt instruments taking the biggest hit, after remaining a preferred investment avenue in the previous year.

The uncertainty around the political scenario, with general elections scheduled in the first half of 2019, means the volatility may continue in the coming months.

The net outflow by FPIs in the debt market is already more than USD 7.6 billion (nearly Rs 52,700 crore) this year, while equities have seen a net outflow of USD 4.6 billion (about Rs 35,000 crore).

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