A woman walks out of the Bombay Stock Exchange in Mumbai. Photo: AFP / Himanshu Bhatt / NurPhoto

Foreign investors have dumped 351.37 billion rupees (US$4.53 billion) worth of Indian equities this month through May 20, a market onslaught that shows no signs of reversing any time soon.

Uncertainty caused by the Russia-Ukraine war, prospects of a more aggressive rate hike by the US Federal Reserve and appreciation of the US dollar have made foreign equity investors broadly risk-averse about emerging markets, with many opting to book profits rather than staying invested.

Foreign investors have been net sellers of Indian equities for seven consecutive months through April 2022, withdrawing over 1.65 trillion rupees (US$21.22 billion) from Indian capital markets.

This flight of foreign funds has been the most protracted since the 2008 sub-prime crisis and is taking a toll across various companies and sectors. Foreign portfolio investment in India’s top listed companies dipped 22% in March after five successive quarters of decline, reports LiveMint. This marks the lowest level of foreign investment in top Indian listed companies in six years, the same report said.

The decline in investor sentiment was plain to see during the recent initial public offering (IPO) of leading insurer Life Insurance Corporation (LIC), which was the biggest in Indian corporate history.

Though the anchor portion of the initial share sale attracted sovereign funds from Norway and Singapore, most of the shares went to domestic mutual funds. Foreign investors saw the pricing as too expensive considering the recent depreciation of the rupee and rising global geopolitical risks.

Some analysts dubbed LIC’s lackluster offering as India’s “Aramco moment”, a reference to the Saudi oil giant’s initial share sale in 2019. The Saudi Arabian behemoth was forced to rely on domestic investors to keep its $29.4 billion share listing afloat.

The weakening of the rupee in the past few months has accentuated investor flight. When the Russian tanks rolled into Ukraine on February 24, the Indian rupee was trading around 73-74 to the US dollar. However, the rupee recently breached the 77 mark and many analysts expect it to drop further.

Steep rises in global fuel and commodity prices have put pressure on the Indian currency. India meets nearly 85% of its oil needs through imports and the weakening rupee has increased import costs across the board.

Pressure on the rupee has forced the Reserve Bank of India to intervene in currency markets to stop the decline by selling off its stash of dollars. The central bank sold $20 billion in March in spot markets – the highest ever in a single month.