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FPIs pull out $1.7 bn in Sept amid rising US bond yields, worst since Jan

The US economy, on the other hand, has remained resilient amid strong consumer spending and a resilient labour market

FPIs

Sundar Sethuraman Mumbai

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September is currently on track to record the worst foreign portfolio investor (FPI) flows into Indian equity markets since January. This month so far, FPIs have withdrawn Rs 13,837 crore ($1.7 billion) on a net basis from domestic equities amid rising US bond yields and a surge in oil prices. 

Over the past six months, overseas funds had pumped Rs 1.7 trillion ($21 billion) into domestic stocks, leading to a rebound of over 17 per cent in the benchmark Sensex and Nifty indices from this year’s lows. The broader market rose more than 40 per cent from their March lows. India was among the best-performing major markets during this period.

The recent sell-off has resulted in a decline of around 3 per cent in the benchmark indices from their highs. Purchases from domestic institutions provided some respite. So far this month, equity mutual funds (MFs) have bought shares worth over Rs 14,000 crore, helping to cushion the impact of FPI selling.
 
FPIs have withdrawn from most emerging markets (EMs) this month as rising US bond yields and uncertainty over the rate hike trajectory have dampened risk appetite. The 10-year US bond yields have hardened nearly 50 basis points to exceed 4.5 per cent.

The hawkish outlook from the US Federal Reserve last week has only intensified the selling by global funds, according to experts. On September 20, the Federal Reserve, while keeping benchmark rates unchanged at a 22-year high of 5.25-5.5 per cent, signalled that interest rates could remain higher for longer. The quarterly economic projections showed that 12 of 19 Fed officials expected to raise rates again this year. 

The US economy, on the other hand, has remained resilient amid strong consumer spending and a resilient labour market.

Chetan Seth, equity strategist at Nomura, in a note last week said: “The new dot plot projections were more hawkish than expected. While the Fed continues to see one more rate hike in the rest of 2023, it has raised its end-2024 and 2025 dot plot projections by 50 basis points each, essentially signalling ‘higher-for-longer’ rates.” 

“We think Asian stocks will likely face some pressure soon, given the hawkish outcome. Rising US bond yields, a stronger US dollar, and elevated energy prices -- all these are ingredients for a bad recipe for Asian stocks,” he stated.

U R Bhat, cofounder of Alphaniti Fintech, said there is profit-taking after Indian indices hit all-time highs. “FPIs are sitting on a lot of money because of the aggressive purchases in the past few months. They were planning to cut some positions and book profits.”

“It’s election time in India, and there could be more thrust on social spending. Also, there are fears that the general elections may be ahead of time. People want to be in a position where they have enough dry powder to take advantage of any situation that may arise after the polls. Moreover, some sectors have done very well, and FPIs are booking profits,” he said.

After averaging less than $80 a barrel this year, Brent crude prices have soared 12 per cent in the past month to $94 a barrel. Given the high import dependence, higher oil prices lower India’s appeal vis-à-vis some of the EM peers.

“High oil prices and lofty US yields are making FPIs take some money off the table. The earnings season is coming up which will be the catalyst for the banks. Investors will be watching what banks are saying. The markets will be looking forward to commentary as this may either infuse some momentum or impart negativity further,” said Andrew Holland, CEO of Avendus Capital Alternate Strategies.

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First Published: Sep 27 2023 | 6:05 PM IST

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