Markets stare at worst-ever FPI sell-off in 2018: All you need to know

Foreign portfolio investors (FPIs) have sold the highest-ever $9.1 billion worth of domestic debt and equity in the first nine months of 2018. This is also the first-ever year in which overseas investors have been net sellers in both the debt and equity markets.

At $7.1 billion, the selling in debt markets is by far the most, followed by $5.9 billion in 2013. Then too, the rupee, bond and stocks had tumbled after the US Federal Reserve announced the end of quantitative easing (QE).

The sell-off this year has come when the Fed has embarked upon delivering the biggest annual rate hike in more than a decade. The central bank has already lifted rates thrice this year by 75 basis points to 2.25 per cent, and another quarter-point hike is expected in December.

Meanwhile, the 10-year US Treasury yield has climbed to a 4-year high of 3.2 per cent. Experts say FPI outflows from Indian markets this year are on expected lines, as the Fed had signaled its tightening plans in advance. Not just India, but Asian peers such as Indonesia, South Korea, Thailand, Taiwan and The Philippines have seen sharp FPI outflows this year. Most others, however, have seen positive flows into bond markets. Sharp inflows into mutual funds (MFs) largely helped offset FPI outflows from India. However, flows into equity MFs are moderating. If FPI outflows accelerate further, counter-balancing by MFs could be a challenge.

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Macro headwinds continue to roil markets as rupee plunges to new low

India’s stock markets saw a fresh round of sell-offs on Wednesday after Brent crude prices climbed to a four-year high of $85 a barrel and the rupee dropped to a new low of 73.34 against the dollar.

Investors pulled out of equity markets on worries that the spike in oil prices and fall in the rupee would adversely impact the economy. Investor sentiment has already been fragile following defaults by Infrastructure Leasing & Financial Services (IL&FS), a lender to the infrastructure sector. The benchmark Sensex closed at 35,975.63, down 551 points, or 1.51 per cent, the most since March 16. The Nifty declined 150 points, or 1.36 per cent, to end at 10,858, a level last seen on July 9.

Brent crude prices were hovering above $85 a barrel — the most since November 2014 — on fears that the impending sanctions on Iran’s petroleum industry would lead to constricted supplies. Oil prices have gained 22 per cent since mid-August and are up more than 50 per cent in the past one year. The surge has come at a time when the dollar is gaining against most global currencies amid the US Federal Reserve embarking on monetary tightening.

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