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Foreign portfolio investors (FPI) have turned to sell their holdings in India after a two-month buying streak amid soaring bonds yields in the US.
FPIs have pulled out a net Rs8.81 billion from the Indian equity market in the first week of March. They have taken back a net investment of Rs42.75 billion from the debt segment taking the total net withdrawals to Rs51.56 billion, showed National Securities Depository Limited (
(NSDL) data.
FPIs invested Rs236. 63 billion in February and Rs 146.49 billion in January. The inflow of FPIs in the current financial year has been robust and Rs2.62 trillion of net investments have been made in FY21 by FPIs.
The rising US bond yields have nearly brought a halt to the bull run both in the global and the domestic equity markets, analysts said.
Further, investors also have taken to profit booking after markets touched record highs, analysts said.
Investors are hoping that the upcoming Federal Open Market Committee’s meeting would stress on keeping interest rates subdued for some more time which may stabilise the bond markets.
US financial services major, JP Morgan has predicted massive selling to the tune of $316 billion as investors are trying to balance their portfolios.
According to a report in Zero Hedge, this number will likely be lower following last week’s sell-off which followed the original JP Morgan analysis, and maybe some $40 billion less based on assumptions about forced Norwegian selling.
“In all, we see some vulnerability in equity markets into quarter-end from pension funds entities as well balanced mutual funds selling equities and buying bonds to rebalance towards their target equity/bond allocations,” JPM said.
It’s more of a correction within a bullish trend, given the rising yields in the US and the fact that valuations are overstretched, according to UR Bhat, director of FII advisory Dalton Capital Advisors.
Analysts are expecting more profit booking in the days ahead, especially if the US yields rise from current 1.5 per cent levels.
“Volatility would increase from hereon, but a collapse is very unlikely,” said Hitesh Jain, lead analyst, institutional equities, Yes Securities. “I think the US 10 year could top out around 1.7 per cent. The effect on an EM like India would translate into a range of 13800-16000 in the next three months.”
JPM analyst Nick Panigirtzoglou said the equity rebalancing flow question is resurfacing in client conversations as investors approach quarter-end. “The equity rally and the bond sell-off during the current quarter is naturally creating a pending rebalancing flow for multi-asset investors away from equities into bonds for pension funds and balanced mutual funds,” he said.
JPM estimates around $107 billion of equity selling by balanced mutual funds globally into the end of March in order to revert to their 60:40 target allocation.
The fundamental factors that are causing the stock market to tank are fear of higher inflation and tech stock valuation. The reason is that dovish monetary policy (Fed buying assets and keeping interest rates at an all-time low) and stimulus support are aiding the economic recovery process.
— issacjohn@khaleejtimes.com
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