The month of January remained one of the worst first month for the equity markets in the past five years. Key benchmark indices BSE Sensex and NSE Nifty plunged nearly 5 per cent in January on account of high selling pressure by foreign institutional investor, or FIIs.
The net outflows by FIIs in January 2016 stood at Rs 11,126.40 crore, which is the worst in the past eight years in the first month. Foreign Institutional Investors sold shares worth Rs 13,035.70 crore in January 2008.
Other factors that dampened market mood in January were rupee depreciation, fall in crude oil prices, mixed corporate earnings of India Inc and rising concerns over China slowdown. A survey says Chinese manufacturing ebbed in January to its lowest in more than three years. It’s the latest sign of weakness for the world’s No 2 economy after it posted its slowest annual growth in a quarter century.
On FIIs outflow, Vidya Bala, head of mutual funds research, Fundsindia.com, said, “FII money is more global money so any macro events on the globe require a readjustment of their portfolio, which they are doing through withdrawal. Also, part of FIIs funds is sovereign wealth money that belongs to the wealthy nations. At present, wealthy nations are under slowdown due to lower oil prices, hence FIIs are pulling out a bit of their sovereign wealth from emerging markets. Also, since the US Federal Reserve started hiking interest rates there was some pull out of money from economy as arbitrage opportunity shrunk a bit because interest rates are going up in the US and returns were shrinking in emerging markets which can be another reason for FII outflows from India.”
Along expected lines, the federal open market committee (FOMC) kept US interest rates unchanged in its previous monetary policy meet in January last week. The decision was widely expected after a month long sell-off in global equities sparked concerns over growth in the US and other major global economies. The US Federal reserve said that it was closely monitoring global economic and financial developments and indicated that while its concerns over a global economic slowdown had diminished the probability of a rate hike in March, it might still be on the cards.
Brijesh Ved, senior portfolio manager, equities, BNP Paribas Mutual Fund, said, “Markets have started to talk about the union budget, scheduled for the month of February and participants are likely to be on the lookout for positive policy statements from the government. Investors are also beginning to view the recent selloff as an opportunity to invest in beaten down blue chip stocks.”