Shishir Asthana June 21, 2013 Last Updated at 13:56 IST
Feature: 5 reasons you need to run faster than FIIs
Trading in equities, commodities, currencies or any other asset class is often compared to surfing. One needs to be at the top of the wave and know when to get out
Trading in equities, commodities, currencies or any other asset class is often compared to surfing. One needs to be at the top of the wave and know when to get out, before the wave comes crashing and crushing everything beneath it. One such wave swept the globe on Thursday after Big Ben struck at the stroke of midnight India time.
Nearly $1 trillion was lost in global equities after Federal Reserve Chairman Ben Bernanke spoke of reducing his bond buying programme. While analysts continued in their state of denial, FIIs were busy selling their holdings in global markets. They did so in India too with the intensity not seen in recent times.
The impact was not only felt in the equity markets but also in the bond markets which led to the rupee plummeting against the dollar. The general message across broking houses and media was that FIIs were running away.
For a trader, it is important to get out of the door faster than others do. FIIs have been the main buyers over the last few years, even as Indian traders and investors ponder over the logic forinvesting in a dismal fundamental scenario. Access to cheap money, thanks to the freebies being on offer in the US, Europe and Japan, saw equity and bond markets being flushed with funds. While these monies have entered various economies, their exit is a bottleneck. There are fewer buyers who are willing to give these FIIs an exit.
However, this time around, FIIs have invested in some of the most fundamentally strong and liquid scrips on Indian bourses. Thus, it will be relatively easy as compared to their earlier escapades. But exit they will as Bernanke has clearly stated that he will start closing the liquidity tap sooner than expected.
As the water seems to be settling after the first wave, there is no doubt that there is more coming. One needs to be on top of the next wave when it comes.
Here are five reasons that can result in the next big wave:
1) The US government has only said that it will start tapering bond buying, it has yet to start doing it. Impact on markets when unwinding really starts can be severe
2) The rupee falling to historic lows can put India’s credit rating at risk. Indian government has been relying onFII flows to keep its head above water; if these stop or, even worse, are reversed, there will be fewer tools to stem the rupee fall then. India’s ratings are just a notch above junk. Once downgraded many funds, as per their charter, will have to exit the country
3) With the new ministers taking important positions, and the performing ministers preparing the party for elections, governance will at best be in maintaining status quo
4) Little can be expected in terms of reforms for the remaining part of the year; if at all only populist measures like the food bill will be cleared which will further impact the bloated deficit
5) Gold prices have come down sharply in the current wave of sell-off. Lower prices will lead to more buying as investors finds gold the safest form of investment in times of crisis and in a declining interest rate scenario in the country. This will keep the pressure on the current account deficit, despite all measures by the government.
Nearly $1 trillion was lost in global equities after Federal Reserve Chairman Ben Bernanke spoke of reducing his bond buying programme. While analysts continued in their state of denial, FIIs were busy selling their holdings in global markets. They did so in India too with the intensity not seen in recent times.
The impact was not only felt in the equity markets but also in the bond markets which led to the rupee plummeting against the dollar. The general message across broking houses and media was that FIIs were running away.
For a trader, it is important to get out of the door faster than others do. FIIs have been the main buyers over the last few years, even as Indian traders and investors ponder over the logic forinvesting in a dismal fundamental scenario. Access to cheap money, thanks to the freebies being on offer in the US, Europe and Japan, saw equity and bond markets being flushed with funds. While these monies have entered various economies, their exit is a bottleneck. There are fewer buyers who are willing to give these FIIs an exit.
However, this time around, FIIs have invested in some of the most fundamentally strong and liquid scrips on Indian bourses. Thus, it will be relatively easy as compared to their earlier escapades. But exit they will as Bernanke has clearly stated that he will start closing the liquidity tap sooner than expected.
As the water seems to be settling after the first wave, there is no doubt that there is more coming. One needs to be on top of the next wave when it comes.
Here are five reasons that can result in the next big wave:
1) The US government has only said that it will start tapering bond buying, it has yet to start doing it. Impact on markets when unwinding really starts can be severe
2) The rupee falling to historic lows can put India’s credit rating at risk. Indian government has been relying onFII flows to keep its head above water; if these stop or, even worse, are reversed, there will be fewer tools to stem the rupee fall then. India’s ratings are just a notch above junk. Once downgraded many funds, as per their charter, will have to exit the country
3) With the new ministers taking important positions, and the performing ministers preparing the party for elections, governance will at best be in maintaining status quo
4) Little can be expected in terms of reforms for the remaining part of the year; if at all only populist measures like the food bill will be cleared which will further impact the bloated deficit
5) Gold prices have come down sharply in the current wave of sell-off. Lower prices will lead to more buying as investors finds gold the safest form of investment in times of crisis and in a declining interest rate scenario in the country. This will keep the pressure on the current account deficit, despite all measures by the government.
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