The speed at which they are fleeing, investors in Indian markets could give sprinters at the Beijing Olympics a run for their, er, medals.
It’s the fastest in the world in a month, & twice Chinese outflows
MUMBAI: The speed at which they are fleeing, investors in Indian markets could give sprinters at the Beijing Olympics a run for their, er, medals.
India-dedicated funds have seen $944 million outflows in the month to July 9, the highest redemption faced by any country-specific funds group in the period, according to EPFR Global data.
China-dedicated funds came a distant second, seeing redemptions under half the Indian number at $469 million.
Redemptions have continued for five weeks in a row leading the Indian benchmark indices to their lowest levels in 15 months.
In the week ended July 9, India-dedicated funds saw an outflow of $215 million, again the highest by any country fund category. In comparison, Chinese funds saw a withdrawal of $32 million.
Experts feel redemptions from India funds have accelerated after seeing Indian authorities’ unwillingness to support the falling currency.
A fall in local currency shaves off foreign investors earnings, if any, and accentuates losses, like in the present scenario. Rupee has depreciated over 10% since the first week of May.
To add to the India-dedicated fund’s redemptions, Indian markets also bore the brunt of redemptions from Asia regional funds, which have considerable allocations to Indian markets. Asia-ex Japan regional funds saw a redemption of $3.4 billion in the past month.
These cascading withdrawal requests from the India-dedicated funds and Asian equity funds are resulting in daily selling of equities in the Indian markets.
On an average, FIIs have been selling Rs 400-500 crore every day. During the month ending July 9, foreign institutional investors have net sold equities worth Rs 8,123 crore, according to Sebi data. In dollar terms, this is a little less than $2 billion.
According to EPFR Global, billions of dollars of outflows from offshore Asian funds have been going on for five weeks in a row and reached $1.8b in the week ended July
9.Comparing this with the size of weekly redemptions between mid-December and late February, the average outflow of $1.5 billion in the last five weeks is 48% bigger.
Citigroup Asia Pacific analysts Elaine Chu, Markus Rosgen and Brian Li said with Asian stocks underperforming world equities by 955 basis points year to date, net outflows from Asian funds have risen to $13.2 billion so far this year.
“Alternatively speaking, 80% of new money taken in last year is now redeemed,” they said in a strategy note on Monday.
They added that latecomers, who came into Asian funds post September, when stocks were expensive have fled.
“Now that Asia is down 31% from the October peak, gone are these investors,” they said.
Talks of a increased bond window of up to $15 billion for foreign institutional investors shored up the rupee to 42 levels for the first time in two weeks. A strengthening rupee could be a carrot to halt the outflows.
But, concerns remain. Gopal Agrawal, head of equities at Mirae Mutual Fund, says valuations are cheap and outlook good, but the short-term macro pains caused by oil and food price inflation stay firmly put.
“But these are short-term setbacks. I feel the market should bottom out this calendar year.”
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