In the last two weeks of February, the markets erased nearly 50% of the post-Budget gains after markets globally saw selling as the US treasury yields crossed 1.6% and touched a one-year high.
By Urvashi Valecha
With the level of Covid-19 infections tapering off and the economy recovering faster than expected, foreign portfolio investors (FPIs) continue to buy into Indian equities. With inflows of $4.9 billion so far in 2021, India is among the favourite emerging markets so far this year. While Brazil and Indonesia have received inflows of $3.2 billion and $1 billion respectively, South Korea, Philippines and Taiwan have seen outflows.
Corporate earnings were reasonably good in the December 2020 quarter. Moreover, changes in FII limits have helped. Nirav Sheth, CEO – institutional equities, Emkay Global Financial Services, said, “The direction of the budget seems to be positive. However, we should not expect a linear growth in FPI flows. We could see some moderation in flows when valuations catch up. If the market stabilises, there will be some risk-on trade.”
In the last two weeks of February, the markets erased nearly 50% of the post-Budget gains after markets globally saw selling as the US treasury yields crossed 1.6% and touched a one-year high. UBS said the nominal yield on the 10 -year US Treasury could increase by 20 basis points to 40 basis points for the year. An increase in bond yields could lead to reallocation of global money to developed markets.
U R Bhat, co-founder, Alphaniti, a tech-enabled investment platform, said, “A sustained rise in bond yields followed by a possible hike in interest rates could lead to a reallocation of global money towards developed markets (DMs). While the weightage of the Indian market in the EM indices may remain unaltered, as global money gets allocated more towards DMs, we may not only see a slowdown in FPI inflows but we could witness some outflows too.”
However, going forward experts believe that the markets are expected to remain buoyant, the economic recovery and earnings growth are expected to support the markets in the long-term.
Amar Ambani, senior president and head of research – institutional equities, Yes Securities, said, “Concrete signals of ensuing economic recovery and earnings growth, coupled with abundance of liquidity makes us believe that 2021 could well be akin to the year 2003, from a market standpoint.”