Foreign investors withdrew the most money from Indian stocks in June in about two years on concern the nation’s public finances will worsen when the U.S. Federal Reserve starts tapering its monetary stimulus.
Overseas funds sold a net $1.76 billion of domestic stocks this month through June 27, the highest since the $2.1 billion withdrawn in August 2011, data compiled by Bloomberg show. They cut debt holdings by $5.4 billion after adding to them for the previous six months, the data show.
The selloff pushed India’s rupee to a record low on June 26, stoking concern the drop will fan import costs in a country with the second-highest consumer inflation in the Group of 20 nations and deter overseas investment in an economy that grew a decade-low 5 percent in the year ended March. Global equities have lost more than almost $3 trillion this month after the Fed said its monthly bond-buying program, which has fueled demand for emerging-market assets, may end next year.
“What has rattled foreign investors most is the rupee, plus the lack of policy action in proactively handling it,” U.R. Bhat, managing director of Dalton Capital Advisors India Pvt., a unit of U.K.-based Dalton Strategic Partnership LLP that has about $2 billion in assets globally, said by phone from Mumbai today. “The talks of quantitative easing tapering by the Fed added fuel to the fire.”
The rupee surged 1.4 percent today to 59.39 per dollar at the close, the steepest since Sept. 21, as investors reassessed expectations for a reduction in U.S. stimulus. Confidence was also boosted as India’s Cabinet agreed to increase natural-gas prices, part of policy overhaul since mid-September to revive economic growth. That cut the rupee’s drop this quarter to 8.6 percent, still the largest since June 2012. The currency has weakened 4.6 percent this month.
The imbalance in India’s current account, the broadest gauge of trade, is the biggest risk to an economy, according to the central bank. The International Monetary Fund estimates the gap at 4.9 percent of GDP this year, compared with 3.3 percent in Indonesia and a surplus of 2.6 percent in China. The Reserve Bank of India left interest rates unchanged this month, ending three straight reductions, and said inflation, economic growth and the balance of payments will guide policy.
The outflows halted 12 months of buying spree by foreign investors pared this year’s inflows into Indian stocks to $13.3 billion, still the highest in Asia after Japan, according to data compiled by Bloomberg. Investors pulled $2.1 billion from Indonesian stocks this month, $4.5 billion from South Korea and $1.8 billion from Thailand, the data show. The S&P BSE Sensex, India’s benchmark stock measure, soared 2.8 percent today, the most in 18 months.
“I don’t believe we are going to see $10 billion to $15 billion coming out of Indian stocks,” Jeff Chowdhry, head of emerging-market equities at U.K.-based F&C Asset Management Plc., which oversees about $150 billion, told Bloomberg TV India on June 26. “I don’t see a 20 percent correction in the Indian market from here. The fundamentals of the Indian economy aren’t any worse than they were six months ago.”
Foreigners have been net sellers of Indian stocks in just two of the past 13 years, the data going back to 2000 show.