 "Fed sparks fresh gush of ETF money")
These investors have pumped in about Rs 6,900 crore in the seven trading sessions after the Federal Open Market Commission (FOMC) meet. So far this month, Foreign institutional investors (FIIs) have been net buyers of equities at Rs 13,228 crore.
Brokers said a large chunk of the flows has been through emerging market exchange-traded funds (ETFs). Most of these funds had been waiting on the sidelines prior to the FOMC meet in absence of clarity regarding the future of the QE3.
The QE3, or the US’ third quantitative easing programme, has been hailed the liquidity lifeline of emerging market economies.
The US Federal Reserve Chairman, Ben Bernanke, had given indications earlier this year in May of a possible $10 billion reduction in QE3, its $85 billion bond-buying programme.
However, Bernanke sprung a surprise on markets globally by deciding to leave the QE3 intact citing unstable US economic recovery as the reason. This led to a rally in global equity markets as currencies stabilised. The BSE Sensex rose by as much as 700 points on September 19.
However, not all sections of the market are rejoicing the increase in inflows as they insist that it is simply hot money chasing returns and could exit as fast as it enters.
“Post the FOMC meet, there has been a definite increase in inflows into Indian equities and it is likely to continue. But this money does not look at Indian economic fundamentals. It is only ETF money that is ear-marked for Indian markets that is being deployed and can be withdrawn just as fast” said Vivek Mahajan, head of research of Aditya Birla Money.
Global ETFs are funds that seek exposure to a wider range of equities across geographies. The announcement of the QE3 in September 2012 saw a flurry of investments into emerging markets from these funds propping up local currencies and equity markets.
Debt investments, on the other hand, have seen net outflows to the tune of Rs 4,516 crore post the FOMC meet. Prior to the meet and since the beginning of the month, net outflows stood at Rs 1,499 crore.
FII outflows from the debt market had been on the rise since the rupee depreciation in June this year. It was further aggravated by the RBI’s measures for capital control introduced in July to stem the flow of the rupee. With 10-year yields still remaining above the 8% mark, investors have been staying away from the fixed income market.
Hitendra Dave, managing director & head of global markets, India, HSBC said the selling in debt has largely been by propreitary desks of foreign institutions, which invested in short-term papers like treasury bills on a fully hedged basis.
"Since the forward premiums (on dollar hedges) have climbed in the past 2-3 weeks, the hedges have turned profitable and investors are therefore booking profits in the debt market. Such FIIs tend to churn their portfolio a lot and the current round of selling is largely linked to the in the moneyness of the fx hedges and/or the T-Bill yields," said Dave.