FII Outflow Alarms Markets
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As the country is reeling under the devastation in Uttarakhand, the Indian financial markets also experienced a landslide in terms of the FII exodus, especially in the bond markets. Thousands of crores evaporated within hours from the capital markets soon after the Federal Reserve’s announcement of the QE3 tapering on June 20. There was a complete mayhem in the markets as FIIs made an exit from the bond markets, triggering a rare circuit. The equity markets followed suit and shed 526 points in intraday trade. The markets maintained their free fall throughout the fortnight.
| Institutional Investment (Rs. in crore) |
|---|
| Date | FIIs (Net) | MFs (Net) |
|---|
| | Equity | Debt | Equity | Debt |
|---|
| June 12, 2013 | -1044 | -700 | -303 | 1091 |
| June 13, 2013 | -552 | -1986 | 21 | 4571 |
| June 14, 2013 | -310 | -3149 | 66 | 5286 |
| June 17, 2013 | -104 | 132 | -25 | 4323 |
| June 18, 2013 | -562 | -584 | 53 | 5192 |
| June 19, 2013 | -459 | -382 | 22 | 1896 |
| June 20, 2013 | -2136 | -3062 | -173 | 2852 |
| June 21, 2013 | -1747 | -978 | -51 | 4009 |
| Total for June 2013 | -6776 | -25141 | -531 | 59774 |
| Total for 2013 (YTD) | 76429.1 | -1094.6 | -13136 | 287326 |
The markets witnessed a pretty turbulent fortnight. The BSE Sensex opened at 18897 points on June 13 and kept shedding some points at regular intervals. The Sensex was at its highest level on June 18 and tumbled down from there. It reached the lowest level of 18467 points on June 24 before closing at 18629 points on June 25, losing 268 points in the last 15 days. Similarly, the NSE Nifty opened at 5709 points on June 13 and declined to touch the lowest level of 5566 points before closing at 5609 points on June 25, losing 100 points.
The current phase of the market is majorly a result of overseas events. It all started last month with the speculations of quantitative easing (QE3) tapering by the Federal Reserve. The FIIs thus started fleeing from emerging markets, foreseeing a liquidity crunch and focused on the bond markets. Soon after the announcement of the tapering by Ben Bernanke on June 19, FIIs pulled whopping Rs 3062 crore on June 20 from the debt market, triggering a circuit as the yield of the India bonds rose by 10 basis points. The rupee has also touched an all-time low of almost Rs 60/dollar sending strong tremors across financial markets.
| Snapshot |
|---|
| | Date | Sensex | Nifty |
|---|
| Open | June 13, 2013 | 18,897.49 | 5709.4 |
| High | June 18, 2013 | 19,383.61 | 5863.4 |
| Low | June 24, 2013 | 18,467.16 | 5566.3 |
| Close | June 25, 2013 | 18,629.15 | 5609.1 |
| Gain For fortnight | | -268.34 | -100.25 |
| % Change | | -1.42% | -1.76% |
In fact, on June 20 alone, FIIs offloaded assets worth Rs 5198 crore while they had earlier (from June 1 to June 19) sold securities worth of Rs 31917 crore. The markets weren’t able to recoup after this beating by FII outflows and remained shaky during successive sessions over speculations that a sharp selling by FIIs could begin in Indian equities too. This, however, has not happened to a large extent unlike other BRICS markets.
The Bernanke effect was quite visible on global indices too. Owing to liquidity concerns, the US Dow fell by 1.55 per cent while China’s Shanghai Composite remained the biggest loser with a 8.79 per cent decline during the last fortnight, followed by South Korea’s Seoul Composite, Brazil’s Bovespa, Hong Kong’s Hang Seng and Taiwan Weighted, which shed 6.53 per cent, 5.76 per cent, 5.76 per cent and 4.70 per cent respectively. None of the indices was able to hold its position.
Looking at the current situation, it seems quite likely that the current downturn will continue for some more time with uncertainty in the international markets. A relatively blunt decline of the Indian bourses clearly indicates that India’s growth story is not over yet. Also, with China’s economy showing visible cracks, India may once again become a favourite investment destination in the near future. A few reforms by the government will also hopefully yield results by the third quarter of the fiscal. The market mantra at the moment should thus be ‘stay put’.
| Indices | Country | 13-Jun | 26-Jun | % Change |
|---|
| Dow | US | 14,992.54 | 14,760.31 | -1.55% |
| Shanghai | China | 2,148.35 | 1,959.51 | -8.79% |
| Hang Seng | Hong Kong | 21,069.26 | 19,855.72 | -5.76% |
| Nikkei | Japan | 13,038.02 | 12,969.34 | -0.53% |
| FTSE | UK | 6,299.50 | 6,101.90 | -3.14% |
| Dax | Germany | 8,023.37 | 7,811.30 | -2.64% |
| Seoul Composite | S Korea | 1,905.10 | 1,780.63 | -6.53% |
| Bovespa | Brazil | 49,758.00 | 46,893.00 | -5.76% |
| Taiwan Wtd | Taiwan | 8,041.50 | 7,663.23 | -4.70% |
| STI | Singapore | 3,127.14 | 3,089.93 | -1.19% |