Why are FIIs selling?
The catalyst is the run on emerging market equities, but many investors are just tired of waiting for India to get its act together
Selling by foreign institutional investors (FIIs) has clearly accelerated. Almost $4 billion (Rs 24,000 crore) exited India’s equity markets in the past three months. In the last two days alone, global investors sold equities worth over $400 million (Rs 2,400 crore). It is no longer just hedge funds shorting stocks or even selling based on exchange-traded funds. We are now seeing large, long-term capital providers selling down their holdings in India, as evidenced by the price damage in stocks like the HDFC twins, ITC and Sun Pharma.
Why are FIIs giving up on India? Why are they willing to exit now, even though the markets are down over 30 per cent in dollars for the year? It is not because it is hot money, prone to running at the first sign of stress. Instead, investors now finally seem to be throwing in the towel. They are unable to deal with India’s volatility or the need to constantly defend the country internally to an investment committee. Investors fear that a crisis is brewing, thanks to Indian policy makers’ inability to bring the situation under control.
First of all, there is great fear surrounding the fiscal deficit given the fact that, in rupee terms, the Indian oil basket (for imports) is at an all-time high. It is inconceivable that Finance Minister P Chidambaram could have any chance of meeting his 4.8 per cent fiscal target. Oil and fertiliser subsidies have multiplied. The projected revenue targets seem unrealistic (tax revenue is already down to single-digit growth) and the revenues projected from disinvestment and spectrum sale are nowhere in sight. Moreover, the food security Bill will only add to the burden.
Yet, the finance minister will have to deliver on the fiscal target to avoid a ratings downgrade. The road to a ratings downgrade is a path no one wants to even contemplate. The only route open to him to meet the deficit target is to once again savagely chop all Plan expenditure, as he did in 2012-13. Yet, if he slashes Plan expenditure, how will we get the push to kick-start investment? There is absolutely no confidence, balance sheet strength or willingness on the part of the private sector to make fresh investments in the country. So the investment cycle can only be kick-started by the government. But if we are going to slash Plan expenditure, this push to investment cannot happen. The skewed mix of growth (consumption at the cost of investment) will also remain unchanged, and surely there are limits to how long this growth imbalance can continue. India’s problem is more supply-side than demand-side, and a savage cutting of Plan expenditure will do nothing to remedy the supply-side issues. Without a push from the public sector, we will remain stuck at five per cent growth.
Investors also worry about inflation. Any attempt to cut fuel subsidies will lead to a spike in inflation, as we align diesel prices to global levels. Besides, rising prices of imported coal will also cascade through the system. And what if China starts recovering and commodity prices move up in tandem? Imported inflation is going to be a major issue; it seriously reduces any space the central bank may have to cut rates. Again, without rate cuts, how will we get the economy moving again?
Source: Business Standard
- India-based Business Process Outsourcing companies are taking away US jobs and are recruiting by the thousands. But why are listed BPO stocks doing badly and what is their long-term future?
- FIIs’ 15-day selling onslaught brings down Bankex by 24%
- Why Millionaire Investors Are Holding on to Cash
- Are FIIs back on Dalal Street?
- FIIs turn bullish on Indian mkts; invest Rs 30K cr in Q1
Search Our Archives
- Stocks Trading above their 50 day moving average - DMA In Stock Research
- Download free Ebooks based on Technical Analysis In Personal Training
- TOP 100 Stocks with the Highest P/E as on July 14th, 2013 In Stock Research
- TOP 100 Stocks with the Lowest P/E as on July 14th, 2013 In Stock Research
- Charting Pathsala - Your guide to Techincals In Technical Analysis
- CB Hi ram, yes, its possible we see a sma...In Intraday calls for 08-02-16
- CB Hi Ravi, it is looking weak. would adv...In Intraday calls for 08-02-16
- ram Hi CB sir VGM. can we expect pre/po...In Intraday calls for 08-02-16
- Ravi Bought Wockpharma 1250CE @ 20. Now at ...In Intraday calls for 08-02-16
- sunil patil sir i bought jagsonpal pharma@ 55 pl t...In Intraday calls for 08-02-16
- vincel Hai cb today I bought jspl@63 what's t...In Intraday calls for 08-02-16
- Name (required) hi CB Any chance for GM Breweries to ...In Intraday calls for 08-02-16
- Prashant Dearr Sirji Have brought Hero Moto ...In Intraday calls for 08-02-16
- madhav hi cb sir, gdp numbers are positive or...In Intraday calls for 08-02-16
- Rajasekar Hi CB, ok thank u sir, what is your vi...In Intraday calls for 08-02-16
- ramaswany ok thanx sir...In Intraday calls for 08-02-16
- CB Hi Ramaswamy, it does look strong tech...In Intraday calls for 08-02-16