Foreign investors have pulled out around Rs 32,000 crore from the Indian capital markets in the first three weeks of October because of the ongoing global trade tiff, rising crude prices and higher US treasury yields.

This is much higher than the over Rs 21,000-crore net outflow seen in the entire month of September. Prior to that, overseas investors had put in a net amount of Rs 7,400 crore in the capital markets (both equity and debt) in July-August.

Data on their investment available from the depositories show they sold equities to the tune of Rs 19,810 crore during October 1-19 and bonds worth Rs 12,167 crore, taking the total to Rs 31,977 crore ($4.3 billion).

This data should not come as a surprise as FPIs have largely been net sellers for most part of this year. Their sales have been more pronounced in the bond markets. So far this year, they have sold over Rs 33,000 crore of equities and Rs 60,000 crore of bonds.

These investors, who have been in a risk off mode, have exited emerging markets such as India to invest in safe haven US bonds with the economy in a recovery mode in the US.

Negative sentiments from the global market on concerns over a slowing world economy led by a lingering trade war between the US and China triggered the FPI pullout, Vinod Nair, head of research, Geojit Financial Services told the PTI.

The sentiment was also dampened by the International Monetary Fund (IMF) downgrading the outlook for the world economy to 3.7 per cent growth earlier this month.

Market experts are of the view that equities are likely to remain under pressure as corporate results have not been extraordinary even as there were other headwinds such as crude prices and upcoming elections in a few states, followed by the general elections in 2019.

The worry is that if the BJP fares poorly in the state polls, it may resort to populist measures. Availability of liquidity to NBFCs is another concern as this could affect their growth.

Mutuals trim bank holding

Meanwhile, with the sentiment continuing to remain against financial stocks, mutual funds have trimmed their holding in banks. Their exposure fell by Rs 21,600 crore to Rs 1.88 lakh crore in September, because of a correction in the equity markets. This was the lowest level of deployment since June, when equity funds’ exposure to bank stocks stood at Rs 1.87 lakh crore. In May, it was at Rs 1.89 lakh crore.

In percentage terms, exposure to banking stocks was at 19.78 per cent of equity AUM last month against 20.21 per cent in August.

“The fall in mutual fund exposure to banks is more driven by market correction than by any significant reduction by mutual funds. In fact MFs have more or less maintained their exposure in banks compared with six months ago (19.78 per cent in April) by adding select banks,” Viday Bala, head of mutual fund research at FundsIndia.com, told PTI.