Overseas investors have pulled out over Rs 17,000 crore or about $3 billion from the domestic debt market in just a fortnight due to weakness of the rupee. During June 3-14, foreign institutional investors were gross buyers of debt securities worth Rs 4,092 crore, while they sold bonds worth Rs 21,213 crore translating into a net outflow of Rs 17,121 crore ($2.98 billion), as Per data available with market regulator Sebi.

 

Market experts attribute the huge sell-off to weakness in the rupee, which lost  6.5 per cent since May, and is instrumental in FIIs exiting the debt markets as the cost of hedging a volatile rupee is rising and in turn hurting the yield differential the FIIs are working with. On June 11, the rupee had hit a record low of 58.98 against the US dollar. But on Friday it closed at 57.51. So far this month, the currency lost around 2 percent.

 

FIIs have been aggressive buyers of bonds since the beginning of 2013 on account of higher yields offered by the government and corporate debt with a net investment of Rs 6,926 crore ($1.5 billion) so far this year. Besides, steps taken by the government to ease FII investment rules by doing away with sub-limits and reducing the withholding tax on debt investments have also helped the segment. Overseas investors net investments had reached two-year high level during 2012, attracting net inflow of around Rs 35,000 crore in the Indian debt market.

 

Moreover, FIIs have withdrawn Rs 1,458 crore ($244 million) from the equity market during the fortnight.With this, the total foreign investment in the equity market has reached Rs 81,747 crore ($15.10 billion) so far this year. As on June 14, the number of registered FIIs in the country stood at 1,759 and the total number of sub-accounts at 6,409 during the same period.