Govt approves infusion of Rs 4,360 cr in IOB; UCO Bank gets Rs 2,142 cr

Indian OverseasBank (IOB) on Friday said it will get a fresh capital infusion of Rs 4,360 crore from the government in the current financial year for meeting regulatory requirement.
In August, the finance ministry had announced a capital infusion of Rs 3,800 crore in the state-owned lender. This has now been increased by Rs 560 crore.

"The Bank has received vide letter dated December 25, 2019 for release of Rs 4,360 crore towards contribution of the central government in the preferential allotment of equity shares (Special Securities/Bonds) of the Bank during 2019-20 as Government's investment," IOB said in a BSE filing.
Besides, the government has approved infusion of Rs 2,142 crore in UCO Bank in line with what was announced in August this year.
Both the lenders are under the Prompt Corrective Action (PCA) framework of the Reserve Bank.
IOB has reported widening of net loss to Rs 2,253.64 crore for the quarter ended September 30, 2019.
The bank had registered a loss of Rs 487.26 crore in the year-ago period. In the June quarter of the current financial year, it had posted a loss of Rs 342 crore.
IOB's gross non-performing assets stood at 20 per cent (Rs 28,673.95 crore) of gross advances during the September quarter, compared with 24.73 per cent (Rs 37,109.96 crore) in year-ago same period.
Net NPAs during the quarter stood at 9.84 per cent as against 14.34 per cent in the year-ago period.
The Net NPA level is higher than the RBI's comfortable level of 6 per cent.
The PCA framework kicks in when banks breach any of the three key regulatory trigger points namely capital to risk weighted assets ratio, net non-performing assets (NPA) and return on assets (RoA).

FPI inflow in equity nears Rs 1 trillion in 2019, highest in six years

Overseasinvestors have been pouring in money in quality large-cap stocks in calendar year 2019 (CY19), with their net investment in Indian equities nearing the Rs 1-trillion mark during this period – a six-year high. Thus far in CY19, foreign portfolio investors (FPIs) have pumped in a net Rs 99,966 crore ($14.2 billion) in equities. The inflow during the year is highest since CY13, when they made a net investment of Rs 1.1 trillion ($20.1 billion) in equities.
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FPIs reposed faith in India in the fourth quarter of CY19, putting in Rs 43,781 crore during October – December CY19, after pulling out Rs 22,463 crore from Indian equities during the third quarter (July-September) of CY19 from the equity market, according to the latest available depository data.

A latest report by BNP Paribas pegs the total flows in six major Asian regions – India, Taiwan, Korea, Indonesia and Philippines at $24 billion at the end of November 2019, compared to an outflow of $16.7 billion in 2018.
“Starting from the third quarter of CY19, foreign flows into Asia were consistently positive. The biggest winners were India ($12.8 billion), Taiwan ($9.1 billion) and Indonesia ($2.9 billion). Flows into Asia should rebound in 2020. Continued rate cuts and a newly begun quantitative easing by the US Federal Reserve, and an ongoing liquidity expansion by other frontline central banks are key potential catalysts for a revival in FII flows,” says Manishi Raychaudhuri, head of equity research for Asia Pacific at BNP Paribas.
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A strong FPIs inflow during the year saw the benchmark indices — the S&P BSE Sensex (up 15 per cent) and the Nifty 50 (up 12 per cent) — register double digit returns in CY19. The benchmark indices have recorded their second best performance in past five calendar years.
Earlier in CY17, the S&P BSE Sensex and Nifty had rallied 28 per cent and 29 per cent respectively, on healthy inflows by FPIs as well as domestic mutual funds.
FPIs had invested a net Rs 51,252 crore, while mutual funds had put in Rs 1.2 trillion in equities during CY17.
On the other hand, domestic mutual funds pumped in Rs 52,850 crore in equities during CY19. Their holdings in 13 stocks from the Nifty and Sensex stocks, such as ICICI Bank, Kotak Mahindra Bank, HDFC Bank and Bharti Airtel, was at an all-time high level at the end of September quarter. These stocks have seen their market price appreciate between 21 per cent and 56 per cent during the year.
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Shankar Sharma, vice chairman & joint managing director at First Global, however, remains cautious on the road ahead for flows into India and says the foreign investors remain a worried lot amid slowing growth and the recent political developments.
“Foreign investors are already very worried about India and will soon start worrying more. The recent political developments will add to their list of worries. All these increase the political risk of doing business in India. Companies want stability and a conducive environment to do business. There is a feeling that not enough recognition is being done on the problem at hand. There has to be a bouquet of policies that are needed to revive growth, which have to be backed by logic and a vision,” Sharma says.
Calendar Net flow Rs (in crore)
Year FPIs MFs
2013 113,136 -21,082
2014 97,054 23,942
2015 17,808 72,199
2016 20,568 48,170
2017 51,252 118,778
2018 -33,014 120,674
2019* 99,966 52,850
*Till December 24, 2019
Source: NSDL, Sebi
Data compiled by BS Research

FPIs remain bullish, invest over Rs 12,000 cr in first week of November

Overseas investors remained net buyers in the domestic capital markets with an investment of over Rs 12,000 crore in the first week of November as market sentiments improved following economic reforms by the government.
The latest depositories data showed that foreign portfolio investors (FPI) infused a net Rs 6,433.8 crore in equities and Rs 5,673.87 crore in debt segment between November 1-9.

This took the total net investment in the domestic markets (both equity and debt) to Rs 12,107.67 crore.
The latest inflows come after two consecutive months of foreign investments. In October, FPIs invested a net Rs 16,464.6 crore while in September they had put in Rs 6,557.8 crore.
However, Umesh Mehta, head of research at Samco Securities termed the FPI purchases "half-hearted" saying that they invested "an average of Rs 550 crore per day this week which is nothing compared to their aggressive past purchases which tally around Rs 1,500-2,000 crore per day.
"It seems that FPIs are feeling left out and have joined the herd; clearly visible through their halfhearted purchases in Indian markets. FPIs are currently nibbling a few shares just to maintain their asset allocation weights in the portfolio towards Indian equities," Mehta said.
Himanshu Srivastava, senior analyst manager research at Morningstar Investment Adviser India said, mainly the domestic factor led to the foreign inflows.
"Measures announced by the government to boost domestic economy and foreign investment like abolishing super-rich surcharge, cutting corporate tax and recapitalisation of banks has started to pay dividends. Besides, stock markets touching new all-time highs and better than expected earnings growth would have also encouraged investors," he added.
Additionally, US Fed's rate cut on October 30 for third time this year coupled with a reprieve in the US-China trade war, has helped increase risk-appetite among global investors, who are now looking at emerging markets such as India for their investments, Srivastava said.
Harsh Jain, co-founder and COO at Groww said,We are beginning to see steady inflows from FPIs since a few weeks. However, the recent downgrade of India by Moody's could affect inflows temporarily but not for the long term.

FPIs pull out over Rs 11,000 crore in July, highest in nine months

Overseas investors have pulled out over Rs 11,000 crore (nearly $2 billion) from Indian equities in July, the steepest outflow in nine months, on account of multiple headwinds, including the tax on ‘super-rich’ announced in Budget 2019-20.
After turning net buyers for the fifth straight month till June, foreign portfolio investors (FPIs) withdrew a net of Rs 11,743 crore ($1.7 billion) in July. This was their highest outflow since October 2018, when they had pulled out Rs 28,921 crore ($3.93 billion) from the equity market. Between February and June, 2019, they pumped net amount of Rs 82,910 crore ($12.7 billion) in equities, according to the depository data.

“Higher taxation for FPIs has been a disappointing measure. There is a lack of clarity from the government on the policy front, which has somehow upset the overseas institutional investors,” says Ajay Garg, managing director at Equirus Securities.
The FPIs sell-off during the month has seen the benchmark indices S&P BSE Sensex (down 5 per cent) and Nifty 50 (down 6 per cent) register their sharpest monthly fall since September 2018, when they tanked 6.2 per and 6.4 per cent, respectively.
However, despite the announcement, the total cumulative net FPI inflow thus far in the current calendar year has remained positive. FPIs have pumped in net amount of Rs 66,905 crore in first seven months of calendar year 2019. They were net sellers of Rs 3,411 crore during the same period of 2018.
Besides the tax proposals, foreign investors, experts suggest, are also worried about the economic growth amid falling consumption, weak corporate earnings and a patchy monsoon thus far. Going ahead, FPI flows will depend on global cues, performance of key domestic macroeconomic indicators and policies pursued by the government, they say.
“Over the short-term, we believe the second quarter is likely to remain a washout, with the slowdown since the first quarter intensifying in consumption and services. This is a result of the ongoing shadow banking crisis and weak global growth,” says Sonal Varma, managing director and chief India economist at Nomura in a recent co-authored report with Aurodeep Nandi.
On the other hand, domestic mutual funds have been accumulating stocks at lower levels. Their net inflow in equities crossed Rs 10,000 crore mark for the first time since October 2018. They were net buyers of Rs 10,378 crore till Monday, July 29, 2019, shows data.
FPI flows are more volatile in nature in comparison to the FDI flows. With the US Federal Reserve (US Fed) also likely to follow an accommodative monetary policy, this could increase FPI flows in the economy.
“Corporate earnings in the June quarter have not been great and the second quarter will be equally tough. FPI flows in India will also depend upon the global environment. US Fed is also likely to cut rates and one needs to assess their commentary. A lot of damage has already been done at the index level (down around 7 per cent since the Budget in July). So relatively, if the global markets fall, the Indian benchmarks are likely to fall less. FPIs, in my view, are not in a rush to come back to India,” says Andrew Holland, chief executive officer, Avendus Capital Alternate Strategies.

Inflow in Rs crore
Month FPIs Mutual Fund
Oct-18 -28,921 24,047
Nov-18 1,195 5,243
Dec-18 3,143 2,917
Jan-19 -4,262 7,161
Feb-19 17,220 2,173
Mar-19 33,981 -7,396
Apr-19 21,193 -4,600
May-19 7,920 5,163
Jun-19 2,596 6,232
Jul-19 -11,743 10,378
Source: SEBI/NSDL

Investors may find it hard to dodge India's plan to tax the super rich

Overseas investors may struggle to circumvent India’s plan to tax the very rich as the option proposed by the tax authorities to sidestep the levies isn’t easy to implement.
With frightened investors wiping off Rs 2.9 trillion ($42 billion) from the benchmark S&P BSE Sensex since the budget on July 5 through Wednesday, tax officials have suggested that global funds convert themselves from trusts -- a structure followed by several foreign funds that invest in India -- to corporates as a way to avoid paying the higher surcharge.

The devil’s in the detail. “Under General Anti-Avoidance Rules, tax authorities can question the move and even deny tax benefits to an entity if the change in the structure is purely led with an intention to avoid tax,” said Punit Shah, a partner at Mumbai-based tax consultants Dhruva Advisors LLP.
Here are some other deterrents:
FPI trusts need to provide non-tax reasons for changing the structure under the GAAR
Investors need to re-evaluate costs and benefits of alternative arrangements as the choice of a particular structure is driven by administrative convenience or local rules
A change in structure will require the transfer of current holdings to another company
Note: About 40% of FPIs registered in India and operating as trusts are likely to be impacted by the proposal, though there could be many that are inactive, according to Dhruva Advisors
The government has maintained that it is not specifically targeting overseas investors and that the increase in surcharge applies to individuals and entities -- including funds -- who invest in local assets through structures like trusts.

Budget 2019: India plans to raise $10 bn from first overseas sovereign bond

India plans to raise as much as $10 billion from its first overseas sovereign bond because there’s huge appetite for its debt in the foreign market, according to a top finance ministry official.
"It’s a cautious beginning, which we need to make," Economic Affairs Secretary Subhash Garg said in an interview on Saturday. "In terms of risk management I don’t see it exceeding 10-15% of the total borrowing, which makes it roughly about $10 billion."
Sovereign bonds in India rallied on Friday after Finance Minister Nirmala Sitharaman said during her budget speech that the government would borrow in foreign currency to finance the budget deficit, a move that will ease pressure on local markets.
"We should be in a position to design the bond issuance program in the next couple of weeks," Garg said in his office in New Delhi, adding the government will release more details in September when it announces borrowing plans for the second half of the year.
Currency Risks
Prime Minister Narendra Modi faces shrinking options to raise funds as a slowing economy crimps tax revenue. Investors have been concerned about his plans to borrow a record 7.1 trillion rupees ($104 billion) this fiscal year, a target Sitharaman left unchanged.
Indian officials, who saw the country’s $2.6 trillion economy fall behind China after the slowest expansion in five years in the latest quarter, see an opportunity to reduce interest costs by borrowing abroad at lower rates.
The idea of a sovereign bond has been discussed by Indian governments in the past, but was never pursued. Some former central bankers have opposed the plan, as it faces risks from currency fluctuations. Former Reserve Bank of India Deputy Governor Rakesh Mohan told CNBC-TV18 on Friday that it was a "dangerous move."
"It may make a positive difference to the current account due to the inflow of foreign currency," Garg said. "I don’t see anybody arguing rationally about its adverse impact."

Shunned at home, India's shadow banks are paying more for foreign funds

India’s shadow banks are being forced to go overseas more for money as local lenders balk at extending funds, flagging strains in a key industry for an economy that’s already sputtering.
The country’s non-banking financial companies have raised more than $2 billion of overseas bonds and loans in 2019, a record compared with the same period in previous years, according to data compiled by Bloomberg. The lifeline is welcome, even as it underscores a scramble after a string of defaults by peer IL&FS Group last year made investors wary.

The development comes at a trying time for India’s shadow banks, which lend to everyone from poor entrepreneurs getting micro loans for food delivery businesses to property tycoons looking to roll over debt. The economy expanded at its slowest pace in several quarters in the first three months of the year.
What Observers Are Saying
“There is obviously some risk premium being attached to the sector by international lenders, compared to funding rates for similarly-rated corporates,’’ according to Chetan Joshi, head of debt capital markets at the Indian unit of HSBC Holdings Plc. “The USD loan market has shown an ability to support Indian NBFC and housing finance company borrowers.’’
“On a fully hedged basis, the borrowing costs for NBFCs would be 25-50 basis points higher than the onshore rates,” according to Ajay Marwaha, London-based head of investment advisory at Sun Global Investments.
For investment-grade companies from India, dollar bond issuance will mainly come from non-bank financial institutions, as their funding conditions onshore have been very tight in the wake of the IL&FS situation, according to Annisa Lee, head of Asia ex-Japan flow credit analysis at Nomura International (HK) Ltd. There’s still not a lot of supply coming from India, so if issuers are willing to pay up, they will be able to print new paper. In terms of the amount of premium they would have to pay, it’s name by name, depending on which sector they focus on, Lee said.
“The ability for most NBFCs to go out and raise money in any meaningful way through domestic capital markets is really quite restricted’’ says Arjun Kapur, head of corporate finance, Sun Global Investments. Most non bank financial institutions would be looking to raise funding from international capital markets, he added.

FPIs pour in Rs 8,634 crore in April so far on positive market trends

Overseas investors have pumped in a net sum of Rs 8,634 crore into the Indian capital markets in the first five trading sessions of April, mainly due to positive market sentiment.
According to analysts, the positive change has been triggered by domestic as well as global factors and the trend is likely to continue for some time.

In March, the overseas investors had pumped in a net Rs 45,981 crore into the capital markets (both equity and debt).
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For the 2018-19 financial year, they were net sellers to the tune of Rs 44,500 crore.
According to depositories data, foreign portfolio investors (FPIs) put in a net amount of Rs 8,989.08 crore in equities during April 1-5. However, they pulled out a net Rs 355.27 crore from the debt markets, leading to an overall investment of Rs 8,634 crore in the capital markets.
"Although India had some domestic concerns in the form of political uncertainty and increase in cross border tension with Pakistan, alleviation in some of these later improved India's prospects," Morning Star's Senior Analyst Manager (Research), Himanshu Srivastava said.
Improvement in the country's macro-outlook, as well as expectations of the formation of a stable government at the Centre, brought foreign money back into the Indian markets, he added.
"Consequently, foreign institutional investors (FIIs) turned net buyers in the India equity markets to the tune of $7.31 billion cumulatively for February and March," Srivastava said.
Globally, after the January 30 FOMC meet, the US Fed chief declared that the "rate hikes are on hold".
Later, the European Central Bank (ECB) also announced a dovish monetary stance and Japan is continuing with its QE program.
The dovish stance of the three leading central banks of the world along with the monetary stimulus being implemented by the People's Bank of China has unleashed a gush of liquidity through FPI. This liquidity is chasing risky assets like emerging market equity, said V K Vijayakumar, chief investment strategist at Geojit Financial Services.
In the context of the economic slowdown in the developed world and the accommodative stance of the leading central banks, the FPI inflows can be expected to continue going forward, he added.

FPIs pump in Rs 20,400 crore in first half of March on positive global cues

Overseas investors poured in more than Rs 20,400 crore in the domestic capital market in the first half of March, mainly driven by positive global cues.
The expectation of a positive outcome from the US-China trade agreement along with US Fed's decision to put rate hike on hold, have worked in favour of the entire emerging market segment, analysts said.

In February as well, foreign portfolio investors (FPIs) were net buyers as they had invested a net amount of Rs 11,182 crore in the capital markets both in equity as well as debt segment.
According to the latest data available with depositories, net inflow in the equities stood at Rs 17,919 crore, while the debt market saw an infusion of Rs 2,499 crore on a net basis, during March 1-15, period.
Together, it translates into a net investment of Rs 20,418 crore in the country's capital markets for the period under review.
"With the expectation on US interest rate hike declining, there has been increased flow into emerging markets. Locally, since February, there is a clear trend of FPIs buying beaten down segments such as banking and finance stocks...," Vidya Bala, Head - Mutual Funds Research at FundsIndia said.
Himanshu Srivastava, senior analyst manager research at Morningstar Investment Adviser India, said it was a welcome change in FPI trend.
However, some of the domestic concerns such as the slow pace of economic growth and political uncertainty may come to the fore as the general election approaches in India, he added.

FPIs pump in Rs 2,741 crore in March so far on positive market outlook

Overseas investors have pumped in a net Rs 2,741 crore into the Indian capital markets in the first five trading sessions of March, mainly due to positive market sentiment.
As per analysts, the positive change is triggered by domestic as well as global factors and the trend is likely to continue for some time.

In February, foreign portfolio investors (FPIs) had invested a net amount of Rs 11,182 crore in the capital markets (both equity and debt).
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According to depositories data, FPIs put in a net amount of Rs 5,621 crore in equities during March 1-8. However, they pulled out a net sum of Rs 2,880 crore from the debt markets, leading to an overall investment of Rs 2,741 crore in the capital markets.
Stock markets were closed on March 4 on account of Mahashivratri.
"The inflows in equity can be attributed to the confidence investors are building towards positive outcome of upcoming election, in the light of recent cross border events. In addition, recently the Reserve Bank of India lifted the cap on FPI investment in corporate bonds.
"Earlier, FPIs could only invest upto 20 per cent in corporate bonds. This should also open doors for more inflows once the political conditions are stable," chief operating officer at Groww Harsh Jain said.
On the global front, Fed's statement that the rate hikes are on hold is a major change in stance of the world's largest central bank and triggered inflows in the Indian capital markets, chief investment strategist at Geojit Financial Services, V K Vijayakumar said.
He further noted that the change in Fed's stance has the potential to change the course of capital flows towards risky assets like equity. Also, India is likely to attract continuing capital flows for the rest of the year, he said.

FPIs pulled out Rs 83,000 cr in 2018 on oil prices, weak rupee, Fed hikes

Overseas investors pulled out over Rs 83,000 crore from the capital markets in 2018, after pouring in a record Rs 2 trillion in the preceding year, on the back of rate hikes in the US, rise in global crude prices and rupee depreciation.
Moreover, the flows are expected to be range-bound in 2019 as FPIs may continue with a cautious stance until there are concrete signs of economic recovery and certainty over the formation of a stable government after the general elections, said Himanshu Srivastava, a senior analyst at Morningstar Investment Adviser.

Foreign portfolio investors (FPIs) made a net withdrawal of about Rs 83,146 crore from the Indian markets in 2018. This comprises Rs 33,553 crore from equities and Rs 49,593 crore from the debt market, according to data available with depositories.
This was the worst year for Indian capital markets in terms of overseas investment since 2002, the last year for which segregated FPI data for equity and debt markets are available.
"Rate hikes in the US and reshuffling of portfolio money across the globe, rupee depreciation and crude rise were all contributors for higher FPI pull out," said Vidya Bala, head of mutual fund research at FundsIndia.com.
"India also lost to emerging markets in terms of foreign money allocation given the lower valuations in other markets at the beginning of 2018. Added to this, the uncertainty on the domestic political front, ahead of an election year, may also have contributed to FPIs staying on the sidelines," she added.
Before 2018, FPIs were net buyers of Indian equities for six consecutive years. They had made net inflows of over Rs 51,000 crore in 2017, Rs 20,500 crore in 2016, Rs 17,800 crore in 2015, Rs 97,000 crore in 2014, Rs 1.13 lakh crore in 2013 and Rs 1.28 lakh crore in 2012.
Prior to that, FPIs had pulled out money from the Indian stock market in 2011. Before that, FPIs had turned net sellers in 2008.
For the debt market, FPIs made a net withdrawal of over Rs 43,600 crore in 2016, but it turned around in a big way in 2017 with a net inflow of Rs 1.5 lakh crore.
Even in 2018, FPIs begun on a positive note by pumping in money, but the trend got reversed soon amid weak global cues and introduction of long-term capital gains tax on equity investments. After a brief recovery in March, the sell-off continued for most part of the year.
Bajaj Capital CEO Rahul Parikh said, "The year 2019 will be the first year since 2008 when globally, central banks will withdraw liquidity worth about USD 1 trillion. Add to that the escalating trade war between US and China and the Brexit conundrum, and you have a near perfect recipe for a volatile 2019."
Slowing corporate earnings growth, optically expensive index level valuations, concerns over bad asset quality in banks, slowdown of credit flow to NBFCs and uncertainty over outcome of general elections in 2019 will impact the FPI inflows, he added.

FPI inflows hit 10-month high of Rs 122.6 bn on softer crude, rupee gains

Overseas investors have pumped Rs 122.6 billion into the Indian capital markets in November, making it the highest inflow in 10 months due to falling crude oil prices and sharp rupee appreciation.
The inflow comes following a net withdrawal of close to Rs 600 billion from the capital markets (equity and debt together) in the preceding two months (September and October).

Prior to that, FPIs had invested Rs 73 billion during July and August.
According to the latest depository data, foreign portfolio investors (FPIs) invested a net sum of Rs 69.13 billion in equities in November and Rs 53.47 billion in the debt market, taking the total to Rs 122.60 billion.
This was the highest inflow since January, when FPIs had put in Rs 222.40 billion in the capital markets.
FPIs have been net sellers almost throughout this year barring January, March, July and August. In these four months, overseas investors have put funds totalling over Rs 320 billion.
Selling by FIIs intensified towards the end of September, when they had pulled out over Rs 210 billion and has continued unabated in October too, with a withdrawal of Rs 389 billion.
"Hike in rates by the US Fed, rising crude oil prices, depreciating rupee, worsening current account deficit, uncertainty over the government's ability to meet fiscal deficit and the impact of these factors on the country's macro-economic condition led FPIs to withdraw their investments from the Indian markets in September and October," said Himanshu Srivastava, senior analyst manager research at Morningstar.
But with the improvement in some of the underlying factors, FPIs made a comeback in November into the Indian markets. Falling crude prices, sharp appreciation in rupee against the US dollar and improvement in liquidity situation alleviated some of the key headwinds to Indian macro-economic environment, he added.
So far this year, FPIs have pulled out over Rs 880 billion from the capital markets. This includes over Rs 350 billion from equities and close to Rs 530 billion from the debt markets.

Steepest outflow in 2 years: FPIs pull out Rs 389 bn in Oct on oil, rupee

Overseas investors pulled out a massive Rs 389 billion (over $5 billion) from the capital markets in October, the steepest outflow in nearly two years, on rising crude oil prices, depreciating rupee and worsening current account deficit.
With this, the total outflow from the capital markets (equity and debt together) has reached over Rs 1 lakh crore (Rs 1 trillion) so far this year.

According to the latest depository data, foreign portfolio investors (FPIs) withdrew a net sum of Rs 28,921 crore (Rs 289.21 billion) from equities in October and Rs 9,979 crore (Rs 99.79 billion) from the debt market, taking the total to Rs 389 billion ($5.2 billion).
This was the highest outflow since November 2016, when FPIs had pulled out Rs 39,396 crore (Rs 393.96 billion) from the capital markets.
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FPIs have been net sellers almost throughout this year barring some months such as January, March, July and August. In these four months, overseas investors put in funds totalling over Rs 32,000 crore (Rs 320 billion).
Selling by foreign investors intensified towards the end of September when they had pulled out over Rs 21,000 crore (Rs 210 billion) and has continued unabated since then.
"Hike in rates by the US Fed, rising crude oil prices, depreciating rupee, worsening current account deficit, uncertainty over the government's ability to meet the fiscal deficit target and the impact of these factors on the country's macroeconomic condition are the primary areas of concern," said Himanshu Srivastava, senior analyst manager research, at Morningstar.
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"Further, upcoming elections in India and escalating trade war tensions between the US and China too blemished the outlook of equities in emerging markets like India," he added.
According to Srivastava, broadly, the world over investors have turned risk averse and are adopting a cautious approach on the back of uncertainty over the prospects of global economic growth, which prompted them to look for other attractive and safer alternatives.
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So far this year, FPIs have pulled out over Rs 1 lakh crore (Rs 1 trillion) from the capital markets. This includes over Rs 42,500 crore (Rs 425 billion) from equities and more than Rs 58,800 crore (Rs 588 billion) from the debt markets.

Great FPI flight: Investors pull out Rs 480 bn in 2018; highest in 10 years

Overseas investors have pulled out nearly Rs 480 billion (Rs 48,000 crore) from Indian capital markets in the first six months of 2018, making it the steepest outflow in a decade, following high crude oil prices and trade war worries.
They withdrew a net sum of Rs 414.33 billion (Rs 41,433 crore) from the debt markets, besides, a net amount of Rs 64 billion (Rs 6,430 crore) from equities during January-June period of the year, taking the total outflow to Rs 478 billion (Rs 47,836 crore), latest update with depositories showed.

This was the biggest outflow since January-June 2008, when foreign portfolio investors (FPIs) had pulled out Rs 247.6 billion (Rs 24,758 crore) from the capital markets -- equity and debt.
Moreover, the latest withdrawal is much higher than the outflow of Rs 412 billion (Rs 41,216 crore) witnessed in the entire 2008 -- during the global financial crisis.
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Interestingly, this is only the second time, when FPIs had taken a bearish stance on the capital markets in the first six months of the year.
"FPI outflow and inflow is dependent on many macro and micro factors. Our macros are very closely linked to the price of crude oil, which is the largest import bill for India. Increase in crude oil leads to an increased current account deficit and high domestic inflation.
"Rising current account deficit is putting pressure on INR exchange rates and higher domestic inflation will put upward pressure on interest rates. Weaker exchange rates and higher interest rates make dollar return weaker for FPIs, which leads to withdrawal of funds," said Reliance Securities Head of Retail Broking Rajeev Srivastava.
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Besides, US interest rates are on rise, which further incentivises withdrawal of foreign liquidity, Srivastava added.
Echoing similar views, R Sreesankar, co head-equities at Prabhudas Lilladher said: "We already run trade deficit and in addition we are importing roughly 85 per cent of crude requirement, any increase in global crude prices will have a further impact on trade deficit and more importantly the Rupee with everything else reaming as normal. This also adds up to the pressure".
It has been a bumpy ride this year as far as FPI flows are concerned and the fluctuations in net flows at times have been massive, thus making the entire proposition unpredictable.
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While in January, FPIs invested a net sum of Rs 223 billion (Rs 22,272 crore) in the capital market. However, in February they were net sellers to the tune of Rs 117 billion (Rs 11,674 crore). On the other hand, they again turned positive in March and put in Rs 27 billion (Rs 2,662 crore).
However, they tooka bearish stance in April and the momentum continued till June. Over the past three months, overseas investor withdrew Rs 610 billion (Rs 61,000 crore).
"Undoubtedly, this year has been extremely unfavourable from FPI flow perspective. This could be attributed to multiple factors. There has been significant outflow from India focused offshore funds and exchange-traded funds (ETFs) which contributes a significant portion towards FPI flow," Morningstar India Senior Analyst Manager Research Himanshu Srivastava said.
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Moreover, he said that India is currently fraught with higher crude prices and depreciating Indian currency.
"The expectation is that the currency may depreciate even further if US Federal Reserve continue to hike rates. The increasing interest rates in the US does not augur well for the emerging economies like India and lead foreign investors to shift their focus to US," Srivastava said.
Broadly, India has to offer a better risk-reward profile, as against comparable countries, to foreign investors to attract their investments. Currently, with the challenges Indian economy is facing, it seems FPIs have chosen to look for other alternatives, he added.

PNB scam: Govt directs PSBs to consolidate their overseas operations

The government has directed public sector banks (PSBs) to consolidate their overseas operations against the backdrop of the Rs 127 billion letters of undertaking (LoUs) fraud in Punjab National Bank. The development means many branches and offices of PSBs in foreign countries will either be shut down or merged with others.
Foreign branches of Indian banks had advanced money to companies belonging to diamond traders Nirav Modi and Mehul Choksi, the prime accused in the scam, allegedly based on fraudulent LoUs from PNB.
“All 216 PSB overseas operations to be examined. Non-viable operations in the overseas market to be closed for cost-efficiency and synergy. Operations in the same geography to be consolidated,” Financial Services Secretary Rajeev Kumar tweeted on Thursday.
Giving further details, Kumar said, “PSBs will consolidate 35 overseas operations without affecting international presence in those countries.
Sixty-nine operations (have been) identified for further examination.” Operations included branches, joint ventures, subsidiaries, remittance centres, and representative offices, he said.
Reacting to the decision, State Bank of India (SBI) Chairman Rajnish Kumar said banks would now have to relook at the business of these operations. He said the idea of rationalisation of PSBs’ overseas operations had been on the government’s agenda for some time now, adding that the largest bank of the country would continue to operate in foreign locations.
Government tells public sector banks to consolidate overseas operations
A senior public sector banker told Business Standard that the consolidation would be based on business assessment and would include options of swapping assets and liabilities with other Indian banks, scaling down presence in some places from branches to representative offices, and shutting down operations in cases of non-viability.
Bank of Baroda (BOB) is shutting down a branch in Hong Kong and a representative office in Thailand. BOB has also decided to exit South Africa, where it has two branches. A BOB executive said Hong Kong, being the financial hub for Asia, would remain a key business centre and the bank would continue to strengthen business from one branch.
Hong Long and Thailand are part of its operations in South East Asia. “The decision to rationalise our presence is part of the review of our international operations,” the executive said.
Thursday’s announcements are the latest steps by the government as it deals with the fallout of the scam. Earlier, the fraud amount was said to be Rs 114 billion, but earlier this week PNB informed the stock exchanges that an additional amount of Rs 13 billion had been discovered to be part of the fraud.
On Tuesday, the finance ministry had directed PSBs to examine non-performing asset (NPA) accounts of more than Rs 500 million for possible fraud and report any cases of wilful default to the Central Bureau of Investigation (CBI). The ministry had also set a 15-day deadline for PSBs to put in place an effective system to address rising operational and technological risks.