Fed rate hike: Indian equities at greater risk from Fed’s rate moves – The Economic Times

Clipped from: https://economictimes.indiatimes.com/markets/stocks/news/indian-equities-at-greater-risk-from-us-feds-interest-rate-stance/articleshow/88459497.cms

SynopsisThe equity assets under management (AUM) of the US funds rose by 47 per cent year-on-year to Rs 18.5 lakh crore at the end of November while the total equity portfolio of the foreign portfolio investors (FPIs) increased by 37 per cent to Rs 48 lakh crore.

ET Intelligence Group: The decision by the US Federal Reserves to raise interest rates may have a more accentuated impact on Indian equity markets given the rising exposure of the US funds to Indian stocks. The share of the US-domiciled funds in Indian equities rose to a multi-year high of 38.6 per cent in November 2021, the data from NSDL show. It expanded by 226 basis points in a year, the most among major nations.

The equity assets under management (AUM) of the US funds rose by 47 per cent year-on-year to Rs 18.5 lakh crore at the end of November while the total equity portfolio of the foreign portfolio investors (FPIs) increased by 37 per cent to Rs 48 lakh crore.

Historically, interest rates in the US have a negative correlation with the equity performance of the emerging markets (EMs). The risk of the redemption in EMs amplified after the US Fed began doubling the rate of the tapering or reducing the monthly purchases of government securities due to surging inflation. It means the Fed’s bond-buying program will end in March 2022 compared with the earlier guidance of mid-2022.

Indian Equities at Greater Risk from Fed’s Rate Moves

Annual inflation in the US rose 6.8 per cent in November, a level not seen since 1982. FPIs sold more than $ 5 billion (Rs 37,000 crore) in the December quarter so far while the Indian Rupee was one of the worst-performing currencies in Asia.

The inflow in Indian stock markets from the tax haven countries has shrunk. The share of such countries including Mauritius, Luxemburg, and Ireland dropped to 24.1 per cent in November from 25.5 per cent a year ago. The biggest decline was in the case of Mauritius, which accounted for 10 per cent of the FPI AUM compared with 15 per cent five years ago.
(Originally published on Dec 23, 2021, 09:50 PM IST)

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