‘A sharp spike in the US 10-year bond yield above 4 per cent is a near-term negative for capital flows to emerging markets,” Geojit Financial Services Chief Investment Strategist VK Vijayakumar said. If the US bond yields remain high, FPIs are likely to continue selling or at least refrain from buying, he added
New Delhi:
After five months of sustained buying, foreign investors have turned net sellers and pulled out over Rs 2,000 crore from the Indian equities in the first week of August, mainly due to Fitch downgrading the credit rating for the US.
In addition, the rich and stretched valuations and minor profit booking could be the reasons for this outflow, Yes Securities Chief Investment Advisor Nitasha Shankar said.
”A sharp spike in the US 10-year bond yield above 4 per cent is a near-term negative for capital flows to emerging markets,” Geojit Financial Services Chief Investment Strategist VK Vijayakumar said. If the US bond yields remain high, FPIs are likely to continue selling or at least refrain from buying, he added.
According to the data with the depositories, Foreign Portfolio Investors (FPIs) withdrew a net sum of Rs 2,034 crore from Indian equities during August 1-5.
This came after unabated net inflow in the past five months — from March to July — following the resilience of the Indian economy amid an uncertain global macro backdrop.
Moreover, FPIs invested over Rs 40,000 crore each in the last three months (May, June and July). The net inflow was Rs 46,618 crore in July, Rs 47,148 crore in June and Rs 43,838 crore in May. Before March, overseas investors pulled out Rs 34,626 crore in January and February.
Himanshu Srivastava, Associate Director – Manager Research, Morningstar India, attributed the latest outflow to global credit ratings agency Fitch downgrading the credit rating for the United States to AA+ from AAA. This dented the sentiments, resulting in foreign investors turning cautious.
To curb inflation, the US Fed raised its benchmark lending rate during its last meeting by 25 basis points, reaching its highest level since 2001. It also signalled the possibility of more hikes going ahead and ruled out the likelihood of rate cuts any time soon.
The potential impact of rate hikes on global liquidity would have led foreign investors to reevaluate their investment decisions, Srivastava added.
The combined market valuation of seven of the top-10 most valued firms eroded by Rs 1,09,947.86 crore last week, with State Bank of India taking the biggest hit, in-tandem with weak trend in equities.
Last week, the BSE benchmark fell by 438.95 points or 0.66 per cent.
From the top-10 pack, Reliance Industries, ICICI Bank, Hindustan Unilever, ITC, State Bank of India, Bharti Airtel and Bajaj Finance were the laggards while Tata Consultancy Services (TCS), HDFC Bank and Infosys witnessed addition in their market valuation.
The valuation of State Bank of India tumbled Rs 38,197.34 crore to Rs 5,11,603.38 crore.
Shares of State Bank of India on Friday fell by nearly 3 per cent after the company’s first quarter earnings failed to cheer investors.
The market capitalisation (mcap) of ICICI Bank eroded by Rs 17,201.84 crore to Rs 6,79,293.90 crore.
The RBI interest rate decision, industrial production data for June and the ongoing quarterly earnings from corporates would largely drive the stock markets this week, analysts said.
Other major factors such as global market trends, the movement of oil prices and the trading activity of foreign investors would also influence trading, they added.
“The market will have an eye on the RBI Monetary Policy Committee (MPC) meeting, which will be announced on August 10, 2023. We are heading towards the last batch of Q2 earnings of key companies such as Adani Ports, Coal India, Hero MotoCorp, Hindalco and ONGC, among others, which will lead to stock-specific movement,” said Pravesh Gour, Senior Technical Analyst, Swastika Investmart Ltd.
On the macro front, market participants will be closely observing key events like industrial production and manufacturing production data, which will be released on August 11, Gour said.
Trend in global stock markets, movement of the dollar index, the rupee against the dollar, and crude oil prices will also dictate the trend, he added.
“The market will react to the upcoming RBI policy, ongoing Q1 FY24 earnings season, crude oil, US inflation data, US initial jobless claims, and UK GDP Data this week,” Arvinder Singh Nanda, Senior Vice President, Master Capital Services Ltd, said.
However, overseas investors injected Rs 1,151 crore into the Indian debt market during the period under review. With this, inflow in the equity market reached Rs 1.21 lakh crore, and while the same for debt stood at Rs 21,600 crore so far this year, data with the depositories showed.
In terms of sectors, FPIs continued to buy auto, capital goods and financials. Besides, a significant change in FPI’s strategy is that they have started buying IT stocks, which they have been selling earlier.
Alekh Yadav, Head of Investment Products, Sanctum Wealth, believes that domestic equities will see FPIs inflow, given the country’s relatively better position going forward.
Foreign portfolio investors (FPIs) had remained net buyers in Indian stock markets for the fifth straight month, according to data from the National Securities Depository (NSDL).
FPIs bought Indian stocks worth Rs 7,936 crore, Rs 11,631 crore, Rs 43,838 crore, Rs 47,148 crore, and Rs 46,618 crore in March, April, May, June, and July, respectively, data showed. In August, however, they are thus far net sellers at Rs 2,034 crore.So far in 2023, foreign investors have put in Rs 120,991 crore in the Indian stock markets.
The foreign funds making their way into Indian stocks buoyed the broader market as the indices have been touching their respective fresh peaks every now and then. Notably, Sensex recently breached the 67,000 mark for the first time.
The latest fund inflows started after the recent banking crisis in the US, leading to the Silicon Valley Bank’s closure, among others, in March. Also, India’s strong economic outlook, as forecasted by various global agencies, seemed to have made a renewed appetite for domestic stocks.
One of the most prominent lenders in the world of technology startups, Silicon Valley Bank, which had been struggling, collapsed on March 10, after a run on the bank by the depositors. Its closure led to a contagion effect and the subsequent shutting down of other banks.
Notably, in January and February, FPIs sold equities worth Rs 28,852 crore and Rs 5,294 crore, respectively. NSDL data showed. Foreign investors were apparently cautious amid risks from the then-volatile financial markets. Barring some exceptions including the current one, foreign portfolio investors (FPIs) had been selling equities in the Indian markets for over a year, which started in October 2021 for various reasons.
In 2022, foreign portfolio investors sold Rs 121,439 crore worth of stocks in India on a cumulative basis, the data available on the NSDL website showed. Tightening monetary policy in advanced economies including rising demand for dollar-denominated commodities, and strength in the US dollar had then triggered a consistent outflow of funds from Indian markets. Investors typically prefer stable markets in times of high market uncertainty.