Foreign portfolio investors (FPIs) are selling $100 million a day of stocks even as global markets mull the possible effect of a US rate hike when the Federal Reserve meets on monetary policy next week. After selling shares worth $2.6 billion in August, foreign investors have moved out $850 million in the first eight sessions of September, Bloomberg data show. That’s the second highest outflow among Asian emerging markets after South Korea’s $1.03 billion. Interestingly, the Indian bond markets have seen just $252 million being pulled out since mid-August after China devalued the yuan; in contrast, close to $3.5 billion of FPI money has exited the Indian equity market.
Market watchers say the US rate hike apart, investors are also taking some risk off the table as corporate earnings aren’t picking up as anticipated and valuations remain steep. “Equity valuations have moderated but are still above average,” Bank of America Merrill Lynch wrote recently, adding that the BSE Sensex one-year forward PE (adjusted for earnings downgrades) has slipped to 15.8 but still remains above the long-term average of 14.5 times.
As such, a combination of global and domestic issues have prompted brokerages to trim their year-end forecasts; at least four leading brokerages have lowered their Sensex and Nifty targets citing slack earnings recovery, risk of continuous yuan devaluation and the chance of a US rate hike.
While Ambit Capital expects the Sensex at 28,000 by March 2016, Barclay’s, Macquarie and UBS now see the Nifty near 8,200-9,642 by end 2015.
As against buying of $23 million worth of India shares in mid-August, FPIs have been selling $175 million worth of equities on average in 21 days. With this liquidation, net purchases by FPIs in 2015 so far now stand at $3.64 billion, in line with their buying of Taiwan equities, even as they turned net sellers of $2.7 billion of shares in Thailand and $590 million in Indonesia.