Foreign portfolio investors have resumed purchasing Indian equities following reduction in the repo rate by the Reserve Bank of India (RBI) and an anticipated delay in the rate hike by the US Federal Reserve. These have helped benchmark indices recover 5% after hitting multi-month lows during the middle of September.
Overseas funds purchased shares worth $75 million on Tuesday, according to provisional data from the stock exchanges. This was the fourth consecutive session of buying, after persistent selling in the previous two-and-a-half months. FPIs offloaded equities worth nearly $1 billion during September and $2.58 billion in August, as fears of an economic slowdown in China led to selloff globally. Market participants said the larger-than-expected rate cut by the RBI will cheer the Street and rate-sensitive stocks in near-term provided it is fully transmitted by lenders to end users.
According to Bank of Merrill Lynch, a 50-bps rate cut, if fully transmitted to mortgage rates, would be equivalent to a 3-4% reduction in housing prices.
“Although we concur that rate cuts help rate-sensitive sectors’ sentiments, we believe mortgage rates impact the sector more. Few public sector banks have reduced mortgage rates by 25-40 bps. However, we await mortgage rate cut announcements from private sector banks that hold a lion’s share of India’s mortgage book,” said Abhishek Kiran Gupta, lead real estate analyst with Bank of America Merrill Lynch.
Private sector lender ICICI Bank on Tuesday cut the home loan rates by 25 bps to 9.65% for new customers. Existing customers would now have to pay an interest rate of 9.55%, compared with 9.9% earlier. I-bulls Housing Finance also cut home loan rates by 25 bps to 9.6% with immediate effect.
Experts said the weak US payroll data for September and the declining odds of a rate hike by the US Federal Reserve will also keep inflows intact in near term. “The odds of a US rate hike during October have lessened due to poor payroll data, and the consensus expects the rate hike by January 2016. In the immediate term, emerging markets will be on a positive note and India is likely to be a strong beneficiary,” said Vinod Nair, head of fundamental research at Geojit BNP Paribas.
According to Bloomberg data, all emerging Asian markets, barring Taiwan, have witnessed inflows from foreign investors so far in the week, with India surpassing its peers. South Korea comes next with inflows worth $116.3 million, followed by Indonesia, where foreign institutions bought equities worth $82.6 million.
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