Since March 19 this year, when the US Fed signalled it’s getting ready to raise rates by removing the key word “patient” from its official statement, a majority of Asian and emerging markets (EMs) equities have witnessed net foreign fund outflows, reports fe Bureau in Mumbai.
According to Bloomberg data, Indian equities saw the third-highest net outflows with foreign portfolio investors (FPIs) pulling out more than $2.5 billion in the last nine months. South Korea topped the list with more than $5 billion of foreign fund outflows followed by Thailand with $3.6 billion of selling in Thai equity markets, data showed.
Analysts said that an interest rate hike in the US — the first hike since June 2006 — sparked liquidation in global equities. While the rate hike has been priced in and the Street is expecting a rally in the near-term, India may see higher selling pressure as EM-focussed investors may rejig their portfolios.
US policymakers are more optimistic about US economic growth and moving toward ‘normalization’ of lending facilities, according to minutes from the Fed’s December 16-17 meeting.
Analysts pointed that India’s overweight stance could turn into a risk if earnings downgrades and monetary policy stagnation continues.
Even as FY16 consensus earnings estimates have declined by 20% in the year so far, Indian market currently trades at one-year forward earnings of 14.9 times, a steep premium to equity benchmarks of peers like South Korea, China and Indonesia that currently command forward earnings multiple of 10.8, 13.44 and 13.9 times respectively, showed Bloomberg data.
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