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Journalism of Courage
‘Sell in stock markets and buy in IPOs’ seems to be the motto of foreign portfolio investors (FPIs) these days. While FPIs have been pulling out funds from stock markets in the wake of monetary tightening plans of global central banks like the US Federal Reserve and Bank of England, they have been major investors in initial public offerings (IPOs) that hit the primary market in recent months.
In calendar year 2021 so far, FPIs have withdrawn Rs 47,126 crore from stock markets, but invested Rs 78,433 crore in the primary market. Barring some IPOs like Paytm and Star Health Insurance, FPIs have made money in most of the issues, especially in some unicorns, that hit the primary market this year.
Merchant bankers say that foreign investors have been looking at listing gains in IPO investments. In fact, they wanted a bigger quota from the anchor investor portion and asked market regulator Sebi to consider different funds from one group to be considered as one entity so that various entities can apply for the IPO as one category.
Most foreign funds, that got allotment as anchor investors, have been selling stocks after the 30-day lock-in period.
On the other hand, stock markets are digesting the hawkish stance of major international central banks amid surging Omicron cases and inflation. “As markets around the world continued to calibrate the currents of inflation, monetary policies, and Omicron, the beacon of pessimism was passed on to domestic bourses as well. FPIs have been withdrawing funds on a daily basis this month,” said Yesha Shah, head of equity research, Samco Securities.
While the European Central Bank took a small step in rolling back the crisis-era stimulus although holding down borrowing costs next year, the Bank of England surprised the markets by raising interest rates for the first time since the onset of the pandemic.
In fact, FPIs have been net sellers since April 2021 with the exception of September. The Bank Nifty has been a major victim of this selling spree, with most of the top ten constituents of the index experiencing a sequential drop in FPI holdings for the quarter ended September 2021. If the US Fed and other major central banks hike rates, FPI outflow is set to intensify in the coming weeks.
Moreover, year-end FPI selling is also on the play as they were booking profits to show higher returns and profits. In an effort to ramp up its efforts against an almost four-decadal high inflation, the Fed signalled that its reign of easy policy is coming to an end. The planned $30-billion per month acceleration of tapering will bring the pandemic-driven bond purchases to a close in March 2022, setting the road for hike in the Fed funds rate.
Officials at the Fed anticipate three rate hikes in 2022, two the following year, and two more in 2024. The well-telegraphed interest rate hike trajectory, along with less hawkish policy than anticipated, gave much-needed comfort and helped US markets rally. “Back home, although our central bank provided no future guidance, Nifty also snapped its four-day losing streak and closed in the green temporarily following the Fed’s announcement,” Shah said.
