Mumbai: Foreign institutional investors (FIIs) sold $440 million (nearly Rs2,145 crore today) of Indian shares this week till Thursday, the highest in close to seven months, according to information from market regulator Securities and Exchange Board of India. These investors had pulled out $426 million in the week ended 23 January.
This week also saw investors pull money out of various emerging market funds the world over.
“I think there is some circumspection partly on account of a threat of tightening in China, drought in India and swine flu,” said Ullal Ravindra Bhat, managing director of Dalton Strategic Partnership Llp, an FII.
To be sure, Friday’s numbers are not included in this $440 million figure, since the regulator publishes such data with a lag of one working day and the Friday figure would be available only on Monday.
On Friday, Indian shares pulled back some of their recent losses after the government said monsoon rains revived in some parts of the country even as other regional markets recovered. The benchmark index of the Bombay Stock Exchange, the Sensex, rose 1.52%, or 228.51 points, on Friday to close at 15,240.83. This week, it has lost 1.11%.
“Investors are sitting on the fence and the direction has changed,” added Bhat. After five months of consecutive net inflows, which saw foreign investors buy as much as $8.8 billion worth of Indian stocks, August is the first month where this number has turned negative, with net outflows so far of $140 million.
Again, this is in line with what has happened in other emerging markets. According to data gathered by EPFR Global, a global funds tracker, emerging market funds outflows during the third week of August totalled $946 million, the most since the second week of December 2008, while Asia ex-Japan equity funds were hit with redemptions that exceeded $810 million.
China, which is now considered as a lead indicator for emerging and even European markets by many analysts, led the outflows as investors booked profits due to concerns about the quality of the country’s growth and fears of a new asset bubble.
“Risk appetite may be moderating,” wrote Henry Hon and Daniel McCormack, analysts with Australian financial services firm the Macquarie Group Ltd, in a 21 August note. “Weaker economic data recently is seeing market concerns about the strength of the cycle grow.”
In India, despite the strong 7.8% growth in industrial output in June, drought fears have prompted economists to cut growth forecasts by as much as 1.5 percentage points.
Not only that, analysts believe that liquidity—which has been the key driver of the current rally—may not be as strong given the new share offers and government debt issues in several markets. In India, there is a limit of $5 billion on foreign investment in government securities.
According to a July study by Delhi-based primary market data provider Prime Database, companies that have applied for regulatory approval so far, plan to raise some Rs6,600 crore through share issuances this fiscal.
This is not counting the Rs60,000 crore they plan to raise through so-called qualified institutional placements or private sales of shares to institutions. These new issues compete for the same investment from FIIs as existing shares.
Despite these factors, local factors would likely remain attractive to global investors for some more time because of stronger fundamentals in Asia, such as better growth and healthier balance sheets, wrote Hon and McCormack.