It?s not a trouble confined to India; the loss in equity markets is a global phenomenon. Even as the Indian markets tanked by around 1.89% (Sensex), many others were also going downhill elsewhere. The Russian and the Chinese markets were far ahead in the downturn. And fund managers have largely been pulling out of equity markets and re-deploying their funds is safer havens.
Overseas investors have pulled out $7.9 billion in the year to date, and clearly, this is amongst the biggest pullouts. According to EPFR, an agency that tracks global fund flows, ?Flows into EPFR Global-tracked funds during the first full week of September evoked memories of the classic flights-to-safety pattern that were supposed to have ended with the so-called ?decoupling? of the US and emerging economies during the current business cycle. Investors pulled $1.08 billion out of Emerging Markets Bond Funds?the biggest one week total since mid-April, 2007?and removed another $2.23 billion from emerging markets equity funds during the week ending September 10 while parking a combined $4.6 billion in US Equity and Bond Funds.?
Similar trends are visible in the Russian and the Chinese market. Overall profit taking and weakening of the local fundamentals as compared to estimates has been at the centre of the downgrade, said a fund manager with an overseas fund. Also, the global risk aversion has increased. ?What was seen as an opportunity two years ago is now seen as a risk?, says Pervin Machado, working with an overseas research outfit. And India is seen as one of the better markets to tread in, as it has a strong regulation and surveillance history.
A lot of this capital flight was initiated by the liquidity bubble that burst in the US. A couple of years back, asset bubbles were created on sub-prime lending and subsequent over-leveraging by firms. ?People in the US bought three houses, without any down payment, and this was dangerous business, as the mortgage companies leveraged this as an asset.? said Jim Rogers, investment guru, in Mumbai recently.