US Fed: Are FIIs predicting the height of US Fed’s quantitative tightening cycle?

A lot earlier than the US Federal Reserve began its aggressive rate of interest hikes and steadiness sheet discount in Might this yr, the move of FIIs on Dalal Avenue turned damaging in October 2021. Until June, the foreigners’ membership offered Indian equities value an unprecedented $33 billion.

July onwards, FII flows in direction of India and different rising markets (EMs) began to show largely constructive with bouts of average promoting. “The above behaviour might be once more signalling that the aggressive price hikes by the US Fed could also be approaching its peak going forward (terminal price of 4.5-5%),”

analysts Vinod Karki and Niraj Karnani stated in a analysis report.

Nonetheless, incremental sharp outflows from EMs like India going forward may point out that the present expectation of a terminal rate of interest of 4.5-5% for the US will likely be breached on the upside going ahead and stays a key danger, the analysts stated.

FII possession in Indian equities stood at Rs 46 trillion as of September-end, a 17% holding of mixture listed Indian equities.

Cushioning the downfall within the Indian market are home flows augmented by the ETF revolution in India. “Fairness ETF AUM in September 2022 stood at Rs 3.7 trillion in comparison with the combination equity-oriented AUM of mutual funds at Rs15.8 trillion (excluding ETFs and hybrid funds). Fairness ETF AUM has risen 25x since FY16 pushed by a low base and fast development whereas equity-oriented AUM of mutual funds has grown 4.5x since FY16,” the report stated.