For­eign in­vestor in­flows may slow on in­crease in Fed rate

Do­mes­tic in­sti­tu­tions may cush­ion some of the blow

Hindustan Times ST (Mumbai) - - HTINSIGHT - Nas­rin Sul­tana

MUM­BAI: For­eign in­vestors, who have pulled out nearly $240 mil­lion from In­dian stocks since the be­gin­ning of the year, may con­tinue sell­ing af­ter Wednesday’s in­ter­est rate in­crease in the US, but do­mes­tic in­sti­tu­tions which have sup­ported the mar­kets so far are ex­pected to cush­ion some of the blow, ex­perts said.

Wednesday’s quar­ter per­cent­age point in­crease—the sec­ond hike this year and the sev­enth since it started in­creas­ing lend­ing rates in 2015—takes overnight lend­in­grateintheus toarange be­tween 1.75% and 2%. The US Fed­eral Re­serve’s rate-set­ting panel also sig­nalled two more rate hikes this year and dropped its pledge to keep rates low enough to stim­u­late the econ­omy “for some time”.

In­dian mar­kets were ner­vous on Thursday, with the BSE’S bench­mark in­dexsen­sex­clos­ing at 35,599.82 points, down 139.34 points, or 0.39%, while the Nifty was at 10,808.05 points, down 48.65 points, or 0.45%.

Ac­cord­ing to Kam­lesh Rao, man­ag­ing di­rec­tor and CEO of Ko­tak Se­cu­ri­ties Ltd, mar­kets have by and large di­gested the fact that Fed will raise rates steadily.

“FIIS (for­eign in­sti­tu­tional in­vestors) have been net sell­ers in this year; so, mar­kets have al­ready bought it in and sus­tained that. As as long as the DII (do­mes­tic in­sti­tu­tional in­vestor) in­flows con­tinue, I don’t think mar­kets will see much im­pact on ac­count of Fed in­creas­ing rates,” he said. Rao says if do­mes­tic liq­uid­ity is in­tact, it will cush­ion the out­flow of for­eign money from In­dia.

Higher in­ter­est rates tempt large for­eign funds to move their money to the US, hurt­ing emerg­ing

May 2018

Jun 2018* mar­kets in­clud­ing In­dia which are al­ready strug­gling with a stronger dol­lar and ex­pen­sive crude oil.

Till date this year, FIIS were net sell­ers of In­dian shares worth $238.47 mil­lion but have pumped in $66 mil­lion in June so far. In con­trast, DIIS have bought shares worth ₹54,394.23 crore this year so far, and ₹5,922.77 crore in June alone. In 2018 so far, Sen­sex has gained 4.53% while the MSCI World and MSCI Emerg­ing Mar­ket in­dices have surged 7.47% and 3.55%, re­spec­tively.

Reuters

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