FPIs sell $6.2-billion debt so far in December quarter

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Mumbai | Published: December 9, 2016 6:13:12 AM

Foreign portfolio investors net sold Indian paper worth $305.1 million on Wednesday, taking their net sell-off for the quarter to $6.2 billion, according to data published by National Securities Depository.

Foreign portfolio investors net sold Indian paper worth $305.1 million on Wednesday, taking their net sell-off for the quarter to $6.2 billion, according to data published by National Securities Depository.

With Fed fund futures indicating a 100% probability of an interest rate hike of 25 basis points being announced at the FOMC meet in December, foreign portfolio investors (FPIs) have net sold $2.26 billion worth debt instruments in the Indian market in the first eight days of December alone.

Since December 1, FPIs net bought Indian debt in only one session, having sold in each and every other session. On Monday, FPIs net sold close to $1.4 billion, the highest daily sell-off in over seven years.

The selling can primarily be attributed to market expectations of an interest rate hike by the US Federal Reserve next month. In fact, Fed fund futures are currently indicating a 100% chance of a rate hike of 25-50 bps in December and a 94% probability of a rate hike of 50-75 bps.

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President-elect Donald Trump’s plan for infrastructural development has pushed market watchers to believe, almost to a point of certainty, that there will be a rate hike in the immediate term, since the country’s debt is bound to rise because of the increased spending.

The impending rate hike is slated to diminish the attractiveness of Indian debt instruments, going ahead. It is also responsible for the recent strengthening of the dollar, because of which most emerging market currencies have reported decline.

The Indian rupee closed at a three-year low of 67.35 against the greenback on Thursday, after having gained 28 paise in the session. The currency has been appreciating for the last couple of sessions as the Reserve Bank of India on Wednesday decided to hold interest rates when the market was expecting a rate cut of 25-50 bps.

On Thursday, the 10-year benchmark yield closed at 6.40%, nearly unchanged from its previous closing. Despite foreign investors selling domestic bonds, bond yields had fallen to a low of 6.19%.

However, yields rebounded on RBI’s decision to hold interest rates, as before the monetary policy was announced, the benchmark yield was around 6 bps below the repo rate. Bond yields and prices move in opposite directions.

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