Strong US economy
Foreign institutional investors (FII) are some of the largest investors in the Indian stock market. However, in 2018, they withdrew more than Rs 90000 crore from the Indian stock market. As a result, the market indices and share prices in India have fallen. A strong US economy is considered one of the main reasons why investors are withdrawing money from India. The Indian rupee has fallen to its all time low against the US dollar, reducing the returns of the FII’s investing in India. Hence they are withdrawing their money from Indian stock markets. These funds are then invested in the United States, where the returns are likely to be better.
Rising bond yield
Another factor which led to the investor withdrawal was the rising bond yield in the US. The Federal Reserve in the US has increased the yield from US securities. the rates are expected to increase further in future. At present the yield for US bonds for a 10 year period is approximately 3.5%. These returns are considered risk free by the FIIs compared to investing in shares. The returns from the all emerging markets have declined due to the depreciation in their currency. The Indian currency, the Indian Rupee remains one of the worst performing currencies in the emerging markets in 2018.
Scams in India
A third factor which affected the investors decision to withdraw funds were the numerous multi crore scams which were exposed in 2018. After the PNB scam earlier in 2018, the ILFS scam exposed in September 2018 adversely affected investor confidence. These scams expose a major problem in corporate governance in India. Implementation of proper systems in banks and financial institutions could prevent these scams. Hence, the Indian stock market indices like Sensex, Nifty are considered overvalued by many investors. These investors anticipate a further decline in share prices. So to reduce their losses, the investors have withdrawn their money from Indian stock markets
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