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Charts & Analysis

Charts: Are Foreign Investors Taking Out Money?

charts.jpg

The talk has been so:

  • Oh they raised taxes
  • And this hits Foreign Portfolio Investors (FPIs)
  • Who have therefore sold their ass off
  • and markets have crashed.

It is indeed true that markets have corrected, and that FPIs have sold. They sold over Rs. 12,000 cr. in equity in July, their highest since October 2018.

But if you notice carefully, the rupee hasn’t devalued much in July. In fact it remained around the 68-69 levels all through. If FPIs were pulling out big time, it would have been tanked the rupee as well.

They were buying debt. They bought over Rs. 9000 cr. in the month of July alone.

FPI Investments(Click through for a larger image)

Now, the FPIs have been buying a truckload of equity in this year, honestly. They’ve done over 66,000 cr. of equity (and 18,000 cr. of debt) this year.

FPI Investments list

This has been so intense that the RBI has bumped up its buying of forex to counter the inflows. That has taken forex reserves to an all time high.

Forex Reserves

What’s the big deal about this?

So, a few notes:

  • China’s just devalued the yuan beyond 7 CNY to the USD – a level not seen since 2008 or so. The rupee today went up to 70.70 in that context, and quickly.
  • Since the reserves are huge, the RBI will be able to sell dollars to counter any sudden or heavy devaluation, and they’ve done well in this regard in the recent past.
  • The selling by the FPIs in equity has been replaced with buying on the debt side, where bonds have gone up in price sharply, probably because markets expect a cut by the RBI.
  • The RBI is quite likely to cut on Wednesday, given that the economy is slowing and inflation isn’t a problem.
  • In that context, there could be sales of debt by FPIs as well, which will result in rupee weakening.
  • We should expect such weakening to be temporary as the RBI usually acts after a sudden fall in the rupee.

This is a chart post, primarily, but thought I’d provide more context.