After turning bullish on Indian stocks in the previous two months, foreign investors have resumed selling Indian equities in September so far as the Middle East conflict escalated sharply, oil prices surged, and global bond yields soared to multi-year highs.
Foreign investors net sold Indian equities worth nearly Rs 14,475 crore in September, according to NSDL data. While persistent FII selling spooks investors, VK Vijayakumar, Chief Investment Strategist at Geojit Investments, noted that the trend of FPI investment through the primary market has continued in September, according to early indications.
FPI investment through the primary market till Friday stood at Rs 1,336 crore, taking the total investment through the primary market this year to Rs 47,183 crore, the analyst said, citing NSDL data as saying. This partly explains the ongoing boom in the primary market despite the tepid performance of the secondary market, according to him.
Also read | Rs 2.8 lakh crore out, Rs 47,000 crore in: Why FIIs are selling listed stocks but chasing IPOs
What will influence foreign flows going forward?
Going forward, FPI flows will be significantly influenced by the Iran-US conflict and the consequent impact on crude prices, Vijayakumar believes. Elevated crude prices, with Brent above $108 per barrel during the week, along with higher inflation, imply tighter monetary policy, which in turn means bond yields will rise further. “If the US 10-year inches up to 5%, there can be a sharp correction in equity markets globally. In such a scenario, FPIs may turn sellers and move money to high-yielding bonds,” Vijayakumar warned.
The 10-year US Treasury yield rose to a three-year high of over 4.9%, as a global bond selloff intensified. The Middle East conflict has pushed energy prices higher, stoking inflation concerns and fears over ballooning government debt.
Also read | Bigger market crash ahead? Analysts weigh how Sensex, Nifty may react if US 10-year bond yield touches 5%
Indian 10-year bond yields also joined the rally, topping 7% as a deepening global debt selloff and a fresh spike in oil prices rattled investors. Rising bond yields typically make the debt market more attractive to investors, which often leads to some downturn in the equity market.
A sustained rise in crude could put further pressure on the rupee, while higher bond yields in developed markets could make emerging-market assets relatively less attractive and potentially lead to capital outflows, Sudeep Shah, Head of Technical and Derivatives Research at SBI Securities, had said earlier this month.
While doomsday prophets continue to raise the alarm and spook investors about negative implications for equity markets and interest rate scenarios if the benchmark 10-year US Treasury yield crosses 5%, some analysts feel the fears are overblown.
Yes Securities issued a contrarian bet, saying the rise in global yields increasingly reflects stronger nominal growth, a structurally higher equilibrium real rate and synchronised global monetary normalisation, rather than deteriorating economic fundamentals or an imminent fiscal crisis.
The domestic brokerage feels a 5% Treasury yield need not be restrictive for equities if corporate revenues and earnings continue to grow, as stronger cash flows can offset a higher discount rate. Its base expectation is for the US 10-year Treasury yield to remain within a 4.7-5.2% range, which it views as a tolerable cost of capital in a higher growth economy, rather than an equity-market breaking point. The risk profile changes materially only if yields sustainably move towards 6-7%, which would likely signal de-anchored inflation expectations, deteriorating fiscal credibility or a significant increase in rstar, potentially overwhelming earnings and nominal GDP growth, it warned.
Also read | Will US 10-year bond yield crossing 5% really hurt markets? Yes Securities says fears overblown
Disclaimer: This article has been written by Debaroti Adhikary, who is not a SEBI-registered Research Analyst or an Investment Adviser. Debaroti Adhikary and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.
