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Global investors dumped a net $1.5bn worth of Indian stocks on Friday, marking the single biggest day of selling since September 2022 as mixed earnings, rising oil prices and “higher for longer” rates in the US weighed on appetite.

The surge in sales by global funds follows a rush of inflows to India earlier in the year on the back of strong growth as investors shifted out of sluggish Chinese markets. Indian shares are up about 13 per cent from a low in March of this year.

But analysts said Indian equities had been hit harder than other Asian markets in recent weeks. Weaker than expected earnings by IT companies and downbeat commentary from some Indian banks contributed to uncertainty over the strength of the country’s economic momentum.

India imports more than 80 per cent of its oil, making it vulnerable to crude prices. The price of Brent crude, the international oil benchmark, has climbed almost 5 per cent since Hamas’s attack on Israel in early October.

“The risk of a rise in oil prices from geopolitical tensions is clearly there,” said Rajat Agarwal, an equity strategist at Credit Suisse.

Agarwal added that fears over oil prices and expectations that the US Federal Reserve would keep interest rates higher for longer were spurring sharper outflows from India than other markets in Asia.

“A sharp rise in oil prices coupled with tighter US financial conditions is not a good backdrop for Indian markets in general,” Agarwal said, pointing to the risk of downward pressure on the rupee as global investors shift out of emerging market bonds and into higher-yielding dollar debt. The rupee is down about 2 per cent against the dollar this year.

Prateek Agrawal, executive director of Mumbai-based Motilal Oswal Asset Management, attributed the selling by foreign investors last week to two factors — US bond yields rising above 5 per cent, and the sharp increase in oil prices, which will hit India’s balance of payments.

“[Foreign investors] believe India gets impacted a tad more than others” by any surge in oil prices, Agrawal said.

Anish Teli, managing partner at Mumbai-based QED Capital Advisors, said that foreign investors may also be disappointed by the recent share price performance of India’s largest listed companies, which are richly valued and have seen fewer gains than soaring small- and mid-sized listings.

Even after sharp gains in the second quarter, India’s benchmark Sensex index is up less than 5 per cent this year in dollar terms.

“Despite the buoyant mood in India, the market has not done very much,” said Andrew Holland, chief executive of Mumbai-based Avendus Alternate Strategies.

Domestic investors “are a lot more comfortable” with buying into Indian stocks, said Amar Ambani, group president and head of institutional equities at Mumbai-based YES Securities. “That’s what’s been holding [up] the Indian equity market despite this outflow.”

Ambani added that, even after recent selling, net foreign buying this year still stood at about $34bn, on track for the largest annual inflows in four years.

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