Overseas portfolio investors have turned extremely cautious on Indian equities. Weakness in emerging market currencies against the greenback, softer earnings growth, concern over corporate governance issues and political risk ahead of the general elections in 2019 are some of the factors that have been kept FIIs jittery.
There are expectations that outflows may continue if corporate earnings do not pick up. “It is high time we start delivering at least in line or maybe even better than earnings, otherwise this FII outflow might continue for longer periods,” Inderjeet Singh Bhatia, who is Head of Research at Macquarie Capital said.
Rising US dollar and rising oil prices have created some pressure on the emerging markets. FII investments in Indian equities has come down steadily over the past six years from Rs 1.28 lakh crore in 2012, Rs 1.13 lakh crore in 2013 to Rs 97,069 crore in 2014, Rs 17,806 crore in 2015, Rs 20,566 crore in 2016 and Rs 49,729 crore in 2017.
A sudden statement of Indian finance minister Arun Jaitley shook the market. He announced Long-term capital gain tax. This sudden movement of the government was unanticipated and later it leads to uncertainty and volatility in the market. FII started pulling out their money from the market as a result of the announcement of long-term capital gain tax. But the fact of the matter is that FII is not only pulling out the money from India but when we see the data then we get to know that they are taking away money to emerging markets like Indonesia, South Korea, Malaysia, and Taiwan etc.
Although the Indian market is strong and the bull has taken a strong breath and ready to take from here but 2018 will be not like 2017 as was predicted by many asset firms.
Further, as rates rise in the West and losses build up, the Emerging Market funds start liquidating to pull out money (this could be one of the reasons for FIIs to keep selling, apart from their need to book profits at such extreme valuations).
Looks like we are in dangerous time.
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