Apprehensive the rupee could weaken further as crude oil prices soar, foreign portfolio investors (FPIs) have dumped Indian bonds worth $1.14 billion in September so far (data till September 19).
Apprehensive the rupee could weaken further as crude oil prices soar, foreign portfolio investors (FPIs) have dumped Indian bonds worth $1.14 billion in September so far (data till September 19). The sales in the equity market, at close, were less than half at $533 million over the same time. However, the foreign exchange outflows have, in turn, aggravated the pressure on the rupee.
In the past three months, the FPIs had remained net investors in the Indian bond markets. In June, the buying totaled to $101.49 million, in July their investments stood at $104.78 million, and in August, the total amounted to $355.05 million. On a year-to-date basis (YTD), there was a total selling of $6.789 billion worth of debt, while the YTD investment in the Indian equity markets totaled to just $1.224 billion.
On Monday, the rupee closed 72.6338 against the greenback and since January, the rupee has lost 12.06%. Noticeably, over the past few trading sessions, the US dollar Index — Dollex — has weakened by nearly 1.35% at around 93.848 levels since the beginning of September only. Treasury yields in the US 10-year paper have been rising over the past couple of months and hit 3.077 % on September 24, highest in almost four months. The yield on the Indian benchmark paper has jumped 12 basis points (bps) from the beginning of September to 8.112% on Monday’s close.
The weakening rupee could prompt foreign investors to offload more bonds market observers said, since otherwise their portfolios would continue to lose value. To be sure, other emerging markets which vulnerable to rising crude oil prices, have also seen sell-offs in their bond markets. Indonesian bond markets have witnessed a net reduced selling of $900 million, because of small amounts of buying in the previous session or so. The FPIs total investment in Indonesian bonds are worth $144.5 million on a YTD basis.
Markets regulator Sebi in its meeting earlier had largely agreed to the proposed amendments in the Sebi (FPI) Regulations, 2014, and experts believe that this was a positive move but there is more support needed for a long-term relief. “The stakes in the US-China trade war have risen and there are no signs of any truce from either parties. India being an emerging market will be directly effected. The price of Brent crude has breached the psychological $80 mark per barrel, after quite sometime now. FPIs have had a tendency to be long-term investors in Indian bonds and this year being a pre-election year, the investors are seeking a sort of assurance for their long term investments,” an expert noted.
“The bigger question presently is the risk appetite of the FPIs in the given situation. However, the sell off in the equity market which is a lot lesser is a signal that the foreign investors still have faith from the Indian markets, they just require assurance from the regulators for the bonds,” the expert concluded.