Overseas investors pulled out nearly Rs 8,500 crore (about USD 1.4 billion) from the debt market in the last fortnight amid concerns over depreciating rupee, which dropped to a record low of 61.21 against the dollar during the period.
During July 2-12, Foreign Institutional Investors (FIIs) were gross buyers of debt securities worth Rs 4,989 crore (Rs 49.89 billion), while they sold bonds amounting to Rs 13,463 crore (Rs 134.63 billion) translating into a net outflow of Rs 8,474 crore (USD 1.41 billion), according to the Sebi data.
The latest outflow comes after a net pull-out of Rs 33,135 crore (USD 5.7 billion) from the debt securities in June. FIIs had turned net sellers of debt securities here for the first time in 13 months.
Moreover, foreign investors withdrew a net amount of Rs 290 crore (Rs 2.9 billion) from the equity market in June so far.
Market experts attributed the weekly sell-off to weakness in Indian currency, which is instrumental in FIIs exiting the debt markets as rising cost of hedging a volatile rupee hurts the yield differential the FIIs work with.
Of late, the Indian currency has been consistently hitting new record lows and it slumped to a life-time low of 61.21 (intra-day) against the US dollar on July 8. Since April 30, the rupee has depreciated by about 13 per cent.
Global markets have seen turmoil after Federal Reserve said it is likely to taper USD 85-billion-a-month bond purchase from later this year and end it ultimately next year if US economic recovery is up to its expectations.
Fed's ultra-loose monetary policy drove asset prices, including those in emerging markets, and fears are that inflows may be hit if US monetary stimulus comes to an end.
FIIs had been aggressive buyers of bonds since the beginning of 2013 on account of higher yields offered by the government and corporate debt. Debt market had witnessed a net inflow of close to Rs 25,000 crore (Rs 250 billion) in January-May this year.
However, the recent withdrawal has hit debt markets hard.
So far this year, foreign investors have pulled out a net Rs 17,560 crore (USD 2.6 billion) from the debt market.
As on July 12, the number of registered FIIs in the country stood at 1,754 and the total number of sub-accounts at 6,409 during the same period.
