Mumbai: The depreciation of rupee against dollar and fear about interest rate hike in the US had triggered heavy redemptions in India-focused offshore funds, which are considered to be long term in nature. This, according to experts, has caused heavy selling in domestic equities over the last four months.

Data released by Morningstar, a global mutual fund research company, showed that the India focused offshore funds witnessed a net outflow of $966 million while India focussed Exchange Traded Funds (ETF’s) believed to be short term in nature saw a net outflow of $940 million during the period.  

“The moving out of long-term money from the country is definitely a concerning factor but not unexpected,” said Himanshu Srivastava, senior research analyst and manager research, Morningstar Investment Adviser India.

He believes that few investors who have been invested in the Indian markets over the last 3-5 years or even more might have chosen to book profit at this juncture anticipating higher volatility in the Indian markets, the closer it is to general elections.

“Additionally, the currency may also depreciate further if US Federal Reserve goes ahead and hike rates further. Hence, investors would have chosen to book profit now than riding the expected volatility going ahead,” he added.

Apart from weak rupee and rate hike fears, sharp surge in global crude oil prices was another factor that impacted investors sentiments. Foreign portfolio investors (FPI) offloaded shares worth Rs 5,552 crore in April and Rs 10,060 crore in May.  

While their selling has significantly moderated in June till date, market participants are not that much convinced about a change a trend reversal.

Over the last few months, currency movement, oil prices, lack of corporate earning and economic growth in India have been dictating FPI flows in India.

“Going ahead we will be entering election season, which could add fair bit of volatility in the markets. FPI’s will also be focusing on the progress of monsoon which is essential to gauge how inflation could pan out,” said Mr Srivastava.