Foreign funds withdraw $400 million in four sessions
Bears tightened their grip over equities on Monday as share sales by foreign portfolio investors (FPIs) intensified amid a clutch of concerns, including weak earnings, contagion risks from Grexit and the levy of MAT on foreign funds. The benchmark indices saw sharp cuts similar to those in major Asian markets. The Sensex lost 555.89 points to close at a three-week low of 27,886.21.
Meanwhile, the widening trade deficit of $11.8 billion in March upset the sentiment in the currency markets and saw the rupee post its biggest loss this year of 0.9% and close at 62.9175 to the dollar, a one-month low. With Monday’s fall, the Indian currency has gained just 0.2% in 2015 so far; bond prices ruled steady. Dealers also traced some of the fall to selling by foreign funds in the stock markets.
FPIs collectively sold nearly $250 million of equities in the cash segment on Monday, provisional data on stock exchanges showed. Local funds, however, turned contrarian buying R962 crore ($155 million). Foreign funds have sold $400 million in the last four sessions dragging benchmark indices down nearly 3.5% on the back of a 4.8% fall in March, Bloomberg data showed. While the weakness in the Chinese markets, following regulatory curbs on speculative trading, spilled over to the Indian markets, dealers said Monday’s decline was also driven by FPI concerns on MAT (minimum alternate tax), pedestrian profits and the sharp drop in exports of 21% in March.
Kotak Institutional Equities (KIE) wrote in a note that it saw a potential 15-20% correction in high-growth quality stocks if investors start questioning the Street’s earnings assumptions. “Earnings disappointments in the first few results of the ongoing results season (Q4FY15) versus already low expectations could result in further market correction,” Sanjeev Prasad, senior ED & co-head (strategy), observed adding that global events like ‘Grexit’ and tax notices to FIIs for past income could also affect sentiment.
CLSA observed that investment sentiment could be impacted further if India’s judicial bodies uphold the claims of the income tax authorities.
“The previous Vodafone tax issue severely impacted investor sentiments around India. If the current issue escalates, investor sentiment could get hurt again… It will create operational chaos for FIIs as they will need to determine who will foot the tax bill,” CLSA noted.
Chinese shares slumped the most in three months after the China Securities Regulatory Commission on Friday banned the margin trading businesses of brokerages from taking part in umbrella trusts, which allow investors to take on more leverage. The Securities Association of
China increased the supply of shares available for short sellers, meaning it will be easier for traders to bet on a pull-back on the Hang Seng.