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Foreign investors net buyers here when US yields rise

Foreign institutional investors (FIIs) have been net buyers every time yields have risen in the United States, according to an analysis of data over the past 20 years.

They have been net buyers by a total of Rs 3.94 lakh crore in Indian markets over the past five occasions that yields in the US have headed north.

They were net buyers by Rs 8,361 crore in 1993-94, when yields rose from 5.38 per cent to 7.91 per cent. They invested a further Rs 6,495 crore in 1998-2000, when yields rose from 4.42 per cent to 6.67 per cent. They also pumped in Rs 86,695 crore as yields rose from 3.37 per cent to 5.14 per cent between 2003 and 2006.

Yields had risen from 2.21 per cent to 3.83 per cent in 2008-2010. Foreign investors pumped in Rs 1,04,077 crore. They also put in Rs 1,88,658 crore in 2012-2013 as yields rose from 1.47 per cent to 3.03 per cent.

A BNP Paribas Asia Strategy report also noted that Indian markets have given positive returns during all the periods that yields have gone up. “Within Asia, the most consistent outperformer was India – the market outperformed Asia on all five occasions. India was followed by Korea, Taiwan and Indonesia – outperformers on three out of five occasions.,” said the August 21 report authored by Manishi Raychaudhuri, Gautam Mehta and Rajan Jain.

The report showed Indian markets had moved upwards of 20 per cent on each of these five occasions.

The foreign investor analysis above looked at inflows during the said periods, between the periods of lowest month-end yields in the year that the up-move began to the highest point in the year that rates stopped climbing. Foreign investor interest in the 90s coincided with the first decade of liberalisation. Foreign investments remained strong in the 2003-06 period, even as Indian markets remained in a strong bull market. The last two occasions had low interest rates at other major central banks, including those from the European Union and the Bank of England.

On Friday, the US Federal Reserve head, Janet Yellen, in her first keynote speech at the annual conference of central bankers in Jackson Hole, Wyoming, said while the US economy was improving, the job market data was not compelling enough for the Fed to decide on a timeline for a rate rise yet. The Fed had earlier hinted at increasing interest rates by mid-2015.

U R Bhat, managing director at Dalton Capital Advisors (India), said he does not expect a sudden withdrawal of foreign capital even if rates were to harden. “Since, it is orderly unwinding, it would not impact on our markets. Earlier, too, the markets had hardly any impact which suggests that if such actions are taken with sufficient notice, markets adjust to it. It’s only sudden things or actions which markets get worried about,” he said.

“…we believe that commencement of Fed rate hikes can reduce EM (Emerging Market) flows temporarily but not structurally. Recent flows into EM have been driven by country-specific policy expectations in China, India, Korea and Southeast Asia and by a broader earnings environment improvement across Asia. Such fundamental drivers of flows, we believe, are likely to prevail for a while,” added the BNP Paribas report.

“Domestically, there is optimism on government action and global cues are turning favourable. Oil prices are holding up despite geo-political tensions. Flows have continued even though the Sensex and Nifty are aggressively priced,” said Nirmal Rungta, director and head, private client group, CIMB Securities

Last week, FIIs were net buyers for close to Rs 2,939 crore, including provisional Friday data from the exchanges. The BSE Sensex and the NSE Nifty during the week were up a little over one per cent. The Sensex closed at 26,419 while the Nifty ended at 7,913.

Since January, FIIs have been net buyers of equity for Rs 76,400 crore, compared to domestic institutions which have been net sellers at about Rs 32,000 crore.


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