Worried by sharp devaluation in the Chinese currency and concerned over its future economic growth, foreign funds have trimmed their exposure to India and emerging markets...
Worried by sharp devaluation in the Chinese currency and concerned over its future economic growth, foreign funds have trimmed their exposure to India and emerging markets (EMs) equities so far this month. FPIs have sold equities worth $570 million in the Indian markets so far in January, Bloomberg data showed. Foreign funds were net sellers for the last seven trading sessions.
The sell-off by FPIs was triggered by poor December Caixin Purchasing Managers Index (PMI) data of China which was released on January 4. Shanghai markets have lost more than 16% since then. The fall in the Chinese markets has impacted other Asian markets. Hang Seng (Hong Kong) has lost 9.03% since the beginning of the year, while South Korea’s Kospi has declined 2.3%. The Sensex has so far declined nearly 5% during the month.
“Indian markets are perceived to be relatively stable compared to other emerging markets. However, any sell-off in Chinese markets is bound to have an impact on the Indian markets as FPIs would resort to basket selling,” said Rakesh Arora, managing director and head of research, Macquarie Capital Securities.
The outflows witnessed by the Indian markets have been relatively lower compared to other Asian markets. During the month so far, FPIs have pulled out $750 million from the South Korean equity markets, while Taiwan has witnessed a sell-off to the tune of $1.5 billion, data showed.
Foreign inflows in the Indian debt markets continue to outperform that of equity markets. At a time when FPIs are offloading their exposure to Indian equities, debt markets continue to attract inflows. The debt segment has witnessed inflows of $417.6 million so far in January.
Notwithstanding the volatility, international brokerages continue to weight India as a relative outperformer in the EM universe. Investment Banking Firm Deutsche expects calendar 2016 to be a positive year for the Indian markets due to pick-up in consumption and revival in corporate earnings.
“While there is understandable investor skepticism on an earnings recovery, we believe that corporate earnings are likely to turnaround in 2016, benefiting from an urban consumption recovery, a positive multiplier impact of government’s push on public investments, a possible reflation in WPI and favorable base effect,” Deutsche said.
The calendar year 2015 was the worst one since 2011 in terms of FPI inflows. Foreign funds net purchased cash equities worth $3.27 billion in 2015, Bloomberg data showed.