A billion dollars a day! FII sell-off worse than the 2008 crisis

India’s $3.2 trillion stock market is witnessing an unprecedented foreign selloff as the surge in oil prices fuels worries of an inflation shock in the major energy-importing nation. While global funds have been net sellers of local equities since the start of October, when the benchmark S&P BSE Sensex hit an all-time high, the pace of outflows has intensified since the start of the war in Ukraine. India relies on imports to meet about 85% of its oil needs.

Overseas investors have offloaded $2 billion of local shares in just two days this week, according to the latest exchange data compiled by Bloomberg, after a record withdrawal of $2.9 billion last week. With this, $19 billion has flown out since Sept. 30, about half of the foreign money local shares lured since the pandemic lows in March 2020. That’s pushed down the rupee to an all-time low.

The current exodus has hit a record, exceeding the foreign outflows seen during the 2008 global financial crisis, according to Bloomberg Intelligence analysts Nitin Chanduka and Kumar Gautam. In past instances, FII selling has generally eased when peak-to-trough outflows approached $8-$10 billion, with the sole exception of the 2008 crisis.

Even so, sustained buying by domestic investors has helped Indian stocks avoid a sharp rout in recent weeks. While the Sensex is down about 10% from its October peak, the gauge is little changed so far this month. That’s when the broader MSCI Asia Pacific Index has lost 4.1% in March.

Domestic funds have infused a net almost $3 billion into local equities since end-September.

While the impact of the war in Ukraine could weigh on domestic earnings for up to two quarters, foreign investors may return when tensions cool, said Rupen Rajguru, head of equity investments at Julius Baer Wealth Advisors India Pvt.

“We believe that better growth of both GDP and earnings will again attract the foreign investors once the dust settles,” he said.