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It is not only Indian markets that are facing the heat, but emerging markets across the globe and region are largely facing outflows. Photo: Mint
It is not only Indian markets that are facing the heat, but emerging markets across the globe and region are largely facing outflows. Photo: Mint

FIIs cautious ahead of Fed meeting, book some EM gains ahead of end 2017

FIIs have withdrawn a net of $648.9 mn from Indian shares so far this month, after pumping in a net $3.05 bn in November, which was the highest such influx since March

Mumbai: Foreign institutional investors (FIIs) have been away from Indian markets yet again, after making a return in November, in line with subdued interest in most emerging markets ahead of the US Federal Reserve decision and commentary due later this week.

Also, fund managers are booking profits as end of 2017 approaches.

FIIs have withdrawn a net of $648.9 million from Indian shares so far this month, after pumping in a net $3.05 billion in November, which was the highest such influx since March. India’s benchmark equity index, the 30-share Sensex, rose to a record high of 33,865.95 on 7 November, and is down 1.88% ever since.

“It is an important decision," said Vaibhav Sanghavi, co-CEO, Avendus Capital Public Markets Alternative Strategies LLP.

Fed’s decision is likely to come late night on Wednesday.

“While the market has factored in 25 bps (basis points) of hike, it is going to be extremely important to see where the consensus lies, and how is the tone of the policy," said Sanghavi. One basis point is one-hundredth of a percentage point.

Bond markets anticipate two more rate hikes next year, but Fed forecasters expect three, a Reuters report said.

It is not only Indian markets that are facing the heat, but emerging markets across the globe and region are largely facing outflows. In Asia, barring China, Malaysia and Sri Lanka, all key equity markets have seen outflows from FIIs so far this month.

“Market consensus is between 2-3 hikes next year. Also, how do they intend to pull back on bond buying, is a key factor. Ahead of that, global investors are cutting risk, and emerging equities are seeing outflows," said Sanghavi. “Year end is also here. So, it makes sense for global investors to book profits and stay on the sidelines," he said.

It is typical of fund managers to lock in gains ahead the year end.

“I think many prefer to take some profits before the year end, because many assets have performed very well and there are some worries how long this bull market can continue," said Hertta Alava, the Helsinki, Finland-based director of emerging market funds at FIM Asset Management Ltd, in an emailed response.

“I don’t think Fed will bring any surprise, but of course the fact is that they have started tightening and continue to do so gradually," Alava said from Helsinki.

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