By Manish M Suvarna
Foreign portfolio investors (FPIs) have remained net sellers of debt worth $587.01 million so far in December, on weak sentiments due to rising cases of the Omicron variant of Covid-19, ahead of the Federal Reserve’s tapering and rate hikes.
Flows from foreign investors were positive in November, as they were net buyers of debt worth $183.54 million. However, in October they sold securities to the tune of $117.22 million, according to data compiled from NSDL.
“Given the US Fed is closing the liquidity tap sooner and expected to hike rates at a faster pace, capital outflows from emerging markets or economies may continue,” said Pankaj Pathak, fund manager, fixed income, at Quantum Asset Management.
Globally, Covid-19 cases are spreading rapidly, which has resulted in restrictions in some countries. A sharp surge has been witnessed in the UK and Europe.
In India, as of Tuesday, more than 150 cases of the Omicron variant have been reported. The surge is creating panic among foreign investors and they are pulling back money from emerging markets.
Foreign players also pulled money after the Federal Reserve, in its policy earlier this month, decided to double the pace at which it would reduce its asset purchases every month. Fed officials have pencilled in at least three rate hikes in 2022. Usually, a rise in yields in advanced countries narrows the spread with emerging market debt yields, making it less attractive to overseas investors.
Market participants expect FPI investments in the debt market to remain volatile because most central banks are expected to tighten their rates in the upcoming months, and considering the rise in Covid-19 cases across the world.