The relentless selling of Indian stocks by foreign investors continued as they withdrew just over Rs 25,200 crore from the Indian stock market in the first half of this month due to rising interest rates around the world and concerns about rising COVID-19 cases.
“Headwinds in terms of rising crude prices, rising inflation, tighter monetary policy, etc. are weighing on the indices. In addition, investors are worried about growth expectations as the Inflation remains elevated globally, so we believe PFI flows are likely to remain volatile in the near term,” said Shrikant Chouhan, Head-Equity Research (Retail), Kotak Securities.
Foreign Portfolio Investors (REITs) remained net sellers for seven months to April 2022, withdrawing a massive net amount of over Rs 1.65 lakh crore from the shares. Going forward, REIT selling will continue in the coming weeks as heat waves in and out of the market will make investors sweat a little more, said Vijay Singhania, Chairman of TradeSmart, adding that the sale led to the fall of FPI’s stake in the Indian companies. 19.5%, the lowest since March 2019.
After six months of selling frenzy, REITs turned net investors in the first week of April due to the market correction and invested Rs 7,707 crore in stocks. However, after a short break, they became net sellers again during the shortened holiday week of April 11-13, and selling continued in the following weeks as well.
FPI flows continue to remain negative in May so far and sold around Rs 25,216 crore from May 2-13, according to custodian data. The RBI, in an off-cycle monetary policy review on May 4, raised the repo rate by 40 basis points (bps) with immediate effect and the CRR by 50 bps from May 21. In a similar vein, the US Fed also raised rates by 50 bps on May 4, the biggest hike in two decades.
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Among investors, these developments have stoked fears that further significant rate hikes are likely to occur in the future. This sparked a sell-off in Indian stock markets by foreign investors, which also continued this week, said Himanshu Srivastava, associate director of research at Morningstar India. “REITs have been selling off in India since November 2021 due to valuation concerns. Rupee depreciation adds to concerns for REITs. Dollar appreciation is broadly negative for emerging market equities. And that will continue to be a factor triggering REIT outflows from India,” VK Vijayakumar, chief investment strategist at Geojit Financial Services, said.
Apart from equities, REITs withdrew a net amount of Rs 4,342 crore from the debt market during the period under review. “Indian bonds have become unattractive due to high yields as the RBI has been slower to raise rates compared to the US Fed. Once the RBI raises rates further, this will subside,” he said. Sonam Srivastava, manager of smallcase.
According to Morningstar’s Srivastava, “In addition to rate hikes by the RBI and the US Fed, uncertainty surrounding the Russian-Ukrainian war, high domestic inflation figures, crude price volatility and weak quarterly results don’t paint an incredibly positive picture. The recent rate hikes could also slow the pace of economic growth, which is also concerning.”
Besides India, other emerging markets, including Taiwan, South Korea and the Philippines, have seen outflows in May so far.
First post: STI