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Eye on US bond yields, FPIs pull out Rs 4,275 crore from debt market in a week

According to data available from the National Securities Depository Ltd (NSDL), overseas investors pulled out a net Rs 881 crore from equities and Rs 4,275 crore from the debt segment between March 1 and 5, taking the total net withdrawals to Rs 5,156 crore.

By: ENS Economic Bureau | Mumbai |
March 8, 2021 1:35:12 am
An Indian tax intelligence unit in mid-March ordered HSBC and Citibank in Mumbai to freeze bank accounts of ByteDance India as it probed some of the unit’s financial dealings. ByteDance has challenged the freeze on the four accounts in a Mumbai court. (Representational image)

With US bond yields on the rise, foreign portfolio investors (FPIs) pulled out Rs 5,156 crore from domestic markets — mostly from the debt segment — in the first week of March.

According to data available from the National Securities Depository Ltd (NSDL), overseas investors pulled out a net Rs 881 crore from equities and Rs 4,275 crore from the debt segment between March 1 and 5, taking the total net withdrawals to Rs 5,156 crore. Prior to this, FPIs invested Rs 23,663 crore in February and Rs 14,649 crore in January. FPIs have pulled out Rs 11,223 crore from debt market since January.

Traditionally, it has been seen that when bond yields rise in the US, FPIs move out of emerging market equities. In fact, it has also been seen that when the bond yield in India goes up, it results into capital outflows from equities and into debt. So, a continued rise in yields in developed markets may put more pressure on domestic equity markets.

Shrikant Chouhan, executive vice president, Kotak Securities, said, “We witnessed a sharp decline in our market mainly due to the sudden jump in the long-term bond yields of the US. We think soon it will be normal for the market and then the market can react normally. The steady growth in the economy leads to a steady rise in the bond yields and therefore the market should start offering discounts in the medium to long term.” US bond yields rose to 1.5 per cent level last week. India’s benchmark 10-year bonds had risen 15 basis points last month to 6.23 per cent.

The debt outflows have outnumbered the inflows since FY16, registering negative net investments. However, the net debt flows were $ 18.5 bn in FY18. Investors from the US account for 34 per cent of the total assets under custody followed by Mauritius (11 per cent), Singapore (8.8 per cent), Luxembourg (8.6 per cent), the UK (5.3 per cent), Ireland (4 per cent), Canada (3.4 per cent), Japan (2.8 per cent), the Netherlands, and Norway each with a share of 2.4 per cent, as per a Care Ratings report. The declining trend in March is mainly on account of the rising bond yields in the US and appreciation in the dollar index, according to VK Vijayakumar, chief investment strategist at Geojit Financial. “Bond markets are discounting reflation in the US due to the massive monetary and fiscal stimulus. But the US 10-year yield is unlikely to move beyond, say 1.7 per cent, given the Fed’s declared policy to keep interest rates near zero through 2023.

EMs are facing FPI outflows with higher outflows seen in Taiwan and South Korea.

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