The selling has primarily been on the back of expectations of a rate hike in the US, which is expected in December
Foreign portfolio investors (FPIs) sold debt paper worth $1.07 billion in October, the biggest quntum sold in a month since February this year, according to data on NSDL. In the last three trading sessions alone, FPIs have sold debt instruments worth over $254 million. In fact, in October they were sellers in 12 out of 18 trading sessions. The 10-year benchmark yield closed Tuesday’s session at 6.82%, around 3 basis points higher than the previous close. Throughout October, the benchmark yield moved in a tight range of around 6.74%-6.82%.
The selling has primarily been on the back of expectations of a rate hike in the US, which is expected in December. There is also a lot of uncertainty leading up to the US presidential election, scheduled to take place on November 8.
Analysts believe that we might witness further selling as we near the end of the year as for most FPIs, the fiscal year comes to an end in December. They are likely to square off their positions before the year-end.
“The fact that FIIs are selling can be attributed to two things largely — the year coming to an end and the uncertainty around the US presidential race. Also, the market has been quite lacklustre off late because of the festive season and corresponding holidays,” Lakshmi Iyer, Chief Information Officer of debt at Kotak Mahindra Asset Management Company, told FE.
Iyer added that a lot of selling is also profit booking, given that there was a rate cut from the Reserve Bank of India in the recent past and also given that yields have been trending low for quite some time now. She also said that going forward, there aren’t many triggers to look forward to in the near-term, barring inflation data, which might have prompted a lot of foreign investors to exit and look for a more active market.
“Data from the US suggests that there is a very strong chance of a rate hike in December. In the last meeting, a lot of members expressed their opinion that the Fed must look at increasing rates in December. Only time will tell whether this is going to be a one-off or if we would see a series of rate hikes from the Fed. But in either case, it has clearly triggered a sell-off in most emerging markets,” Karthik Srinivasan, senior vice-president at rating agency ICRA, said.
So far this year, FPIs have net sold debt instruments worth $811 million in the domestic market and have net bought equities worth $6.67 billion.