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Demonetisation effect: Foreign investors pull out around $5 billion in November

Amid the concerns over the effect of demonetisation on the Indian economy, foreign investors pulled out about $5 billion from the capital markets in November so far.

Amid the concerns over the effect of demonetisation on the Indian economy, foreign investors pulled out about $5 billion from the capital markets in November so far.

After Prime Minister Narendra Modi’s decision to demonetise high value notes there have concerns over demonetisation slowing the Indian economy and fears of a rate hike by the US Federal Reserve.

Net withdrawal by Foreign portfolio investor (FPI) from equities stood at Rs 15,763 crore during November 1-25, while the same from the debt market was Rs 16,154 crore during the period under review.  The withdrawal has translated into total outflow of  Rs 31,917 crore ($4.7 billion), according to exchange data.

Foreign portfolio investor (FPI) outflows come following withdrawal of more than Rs 10,306 crore on net basis from the capital markets (equity and debt) last month. Prior to that, the equity market had witnessed inflows of over Rs 20,000 crore.

Cash crunch in the Indian economy, after PM Modi’s announcement to demonetise Rs 500 and Rs 1000 notes on November 8, sparked intense selling pressure.  

Market experts say that pull out by FPIs started in October due to several factors such as the uncertainty over US ties with the emerging markets, post-Trump victory and economic growth from demonetisation in the near term.

The day after the demonetisation move was announced and Trump won the US presidency, the BSE Sensex had opened with a massive loss of 1,300 points. Economy experts claim that there may be a negative impact on the GDP in the October-Dec quarter due to demonetisation, as consumption shock gets transmitted into the system.

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