1. FPIs cool on India, pull out $300 m YTD

FPIs cool on India, pull out $300 m YTD

Despite the Sensex having lost close 1,000 points or 3.5% in the last three sessions of 2015...

Mumbai | Updated: January 8, 2015 2:26 AM
India remains among the most expensive markets, trading at a multiple of close to 19 times.

India remains among the most expensive markets, trading at a multiple of close to 19 times.

Despite the Sensex having lost close 1,000 points or 3.5% in the last three sessions of 2015, India remains among the most expensive markets, trading at a multiple of close to 19 times, reports Yoosef KP in Mumbai. That could be one reason for foreign portfolio investors (FPIs) starting to take risk off the table — FPIs were sellers for the second straight session on Wednesday, taking outflows in 2015 so far to around $300 million. In 2014, they had invested around $16.2 billion. Interestingly, they continue to be buyers in the bond market, having picked up paper worth $440 million in the last four trading sessions.

China is cheaper trading at a multiple of 16 times — the Shanghai Composite gained 4.2% in the first three sessions of 2015 though data on fund flows are not available. FPI sales of Indian stocks, however, are relatively smaller than the withdrawals from emerging markets (EMs) like Taiwan and South Korea, where anywhere between $400 million and $800 million has been pulled out. Rising risk aversion across the globe in the wake of falling oil prices — the price of crude oil dropped to below $50 per barrel on Wednesday — has triggered selling pressure across EMs.

Investors are apprehensive that the global recovery may be delayed, which is why oil prices are weak. Deflationary pressures have set in on the back of falling prices of commodities and stagnant growth, particularly in Europe. Liquidity has been contained after the US Federal Reserve rolled back its third cycle of quantitative easing. However, the latest market jitters have reignited hopes of a faster than expected monetary easing by European Central Bank (ECB) while Japan stays its course and China also considers stimulus.

fpi-graph

Although such liquidity infusion is could bring some respite to global equity markets, emerging market may not necessarily benefit much from the stimulus. This is because barring QE1, EMs were not the top performers in the subsequent two rounds of easing. On the other hand, developed markets, especially the S&P 500, were prominent beneficiaries. The US index rallied 36%, 24% and 12%, respectively, in the three rounds of US QE.

Yoosef KP

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