India records highest level of capital outflow

By Rhod Mackenzie

Foreign portfolio investors withdrew $3.4 billion worth of assets from India in January, the highest level in the past 12 months, Business Standard reports .
“Foreign portfolio investors sold $3.4 billion worth of shares in January this year, the highest in 12 months,” the article says.

The main reasons for the outflow were disappointing results from several companies with large amounts of foreign direct investment, rising US bond yields and geopolitical uncertainty, the newspaper writes. According to him, the outflow of assets was affected by the quarterly earnings of companies such as HDFC Bank, Hindustan Unilever and Bajaj Finance, where foreign direct investment has a significant share of risk. Concerns over HDFC Bank's loan growth and net interest margins led to a 15 per cent fall in shares of India's largest private sector lender.
The publication writes that rising US Treasury yields also weighed on investor sentiment and raised concerns about whether the Federal Reserve will cut interest rates. After stabilizing at 3.86% in December 2023, the US 10-year yield rose to 4.2%, leading to a revaluation of risky assets.

"Institutional investment firms are likely taking money from markets like India to invest in China. It is a cheap market. The banking sector has not performed as well," Andrew Holland, director of Avendus Capital Public Markets Alternate Strategies, was quoted as saying in the article.

Going forward, analysts say, foreign investment flows will be influenced by India's budget, the trajectory of interest rates in developed countries, and the health of the Chinese economy. India expects its economy to grow 7.3% in the 2023-24 financial year, the highest among all major global economies. Foreign investors have made big bets on India since Prime Minister Narendra Modi came to power in 2014, with companies such as Apple, Samsung, Kia and Airbus expanding their operations in India.