Foreign portfolio investors (FPIs) have been continuous sellers of Indian debt for the last six days , leading to a net outflow of $548.07 million. A continuous selloff of this kind was last seen in May when FPIs sold paper worth $1.46 billion over eight days starting May 5.
Ashish Vaidya, executive director and head of ALM and trading at DBS Bank India, said the fear of a rate hike in the US, along with a portfolio churn during the year-end, might be the reason behind the selloff.
“The continuous selloff in the Indian debt market by FPIs for the past six days is probably because of the fear of a possible rate hike in the US and the portfolio churn and risk reduction towards the end of the calendar year by FPIs.
I think this can continue for a few more days after which it will stabilise,” he said.
Investors in the US are anxiously watching out for every word that the Federal Reserve chair Janet Yellen would be saying in her Congressional Testimony later in the day.
Every economic data out of the US and words from Fed officials will be quite significant considering that the two-day Federal Open Market Committee (FOMC) meet commences in mid-December.
“The exact impact of the US rate hike cannot be assessed as of now. Most of it is has already been factored into the system, but what will actually happen on the ground if the Fed hikes the rates is something that will evolve over a period of time,” Vaidya said.
Foreign investors, however, do not seem to have a negative outlook on Indian debt considering that they were willing to pay a premium of 82 bps to acquire limits on government securities that were put up for auction on October 12. At the last auction on Monday, foreign investors put in bids worth twice the notified amount and were ready to pay a premium as high as 62 bps to acquire G-Sec limits.
FPI interest in the corporate bond market, however, has remained subdued since the beginning of the fiscal. Data from the depositories show that foreign investors have utilised just 75.98% of the $51-billion quota in corporate bonds. At the beginning of April, this figure stood at 77.43%. So far, FPIs have poured $8.45 billion into Indian debt while equities have seen just $4.33 billion worth of inflows.
On the whole, the highest net outflows in Indian debt securities came in May when FPIs sold debt worth $1.28 billion where as the highest inflows came in January at $3.72 billion. The highest inflows in a single day was on June 15 when foreign investors poured $1.46 billion into debt securities. The highest outflow in a day happened on June 12 at $510.98 million.
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