As the European crisis showed little signs of easing, foreign institutional investors (FIIs) turned wary on investments in equities, resulting in a net outflow of Rs 9,436 crore during the month. This was the biggest selling in a month since October 2008, when FIIs withdrew Rs 15,347 crore.
According to experts, FIIs are looking for safe havens and are investing in US treasury bonds in order to safeguard against volatile markets.
“There is a flight to safety towards US sovereign bonds and it is expected to continue till FIIs see stability,” said the head of an investment banking.
“As of now investors are cautious on taking country risk and most outflows are redemption related,” added C.J. George, managing director, Geojit BNP Paribas Financial Services.
While FIIs pumped in Rs 29,289 crore in March and April, May saw a complete reversal.
This is the fourth highest withdrawal in a month by FIIs, the previous three being in 2008.
The huge outflows resulted in strong falls in the Sensex, which lost 8.7 per cent till May 25th, but it regained some lost ground in the past four trading sessions and closed the month with a loss of 3.5 per cent.