Since March 19 this year, when the US Fed signalled it’s getting ready to raise rates by removing the key word “patient” from its official statement, a majority of Asian and emerging markets...
Since March 19 this year, when the US Fed signalled it’s getting ready to raise rates by removing the key word “patient” from its official statement, a majority of Asian and emerging markets (EMs) equities have witnessed net foreign fund outflows, reports fe Bureau in Mumbai.
According to Bloomberg data, Indian equities saw the third-highest net outflows with foreign portfolio investors (FPIs) pulling out more than $2.5 billion in the last nine months. South Korea topped the list with more than $5 billion of foreign fund outflows followed by Thailand with $3.6 billion of selling in Thai equity markets, data showed.
Analysts said that an interest rate hike in the US — the first hike since June 2006 — sparked liquidation in global equities. While the rate hike has been priced in and the Street is expecting a rally in the near-term, India may see higher selling pressure as EM-focussed investors may rejig their portfolios.
US policymakers are more optimistic about US economic growth and moving toward ‘normalization’ of lending facilities, according to minutes from the Fed’s December 16-17 meeting.
Analysts pointed that India’s overweight stance could turn into a risk if earnings downgrades and monetary policy stagnation continues.
Even as FY16 consensus earnings estimates have declined by 20% in the year so far, Indian market currently trades at one-year forward earnings of 14.9 times, a steep premium to equity benchmarks of peers like South Korea, China and Indonesia that currently command forward earnings multiple of 10.8, 13.44 and 13.9 times respectively, showed Bloomberg data.