The war between Russia and Ukraine and rising oil prices have prompted foreign investors not to take risks as the country relies heavily on imports to meet its oil needs.
Foreign Portfolio Investors (FPIs) have sold more stocks since October 2021 than they did during the 2008 financial crisis globally. Between October and today, according to Bloomberg data, foreign investors sold Indian stocks worth $19.8 billion, compared to $14.6 billion in outflows between January 2008 and March 2009. he benchmark Sensex had lost 61% over the same period.
The war between Russia and Ukraine and rising oil prices have prompted foreign investors not to take risks as the country relies heavily on imports to meet its oil needs. “The sharp rise in crude oil prices comes on top of the already accelerating imports for India and will cause the current account deficit to widen,” Jefferies wrote in a note to investors. The rupee, which plunged to record lows on Monday, has depreciated 2.6% against the greenback so far in 2022. The local currency has fared poorly in Asia after the South Korean won, which fell by 3.1% over the same period.
Financials and technology stocks, where REITs store almost half of their money, saw strong sales during the period, while basic companies were the most sought after despite higher valuations and pressure on margins due to rising input costs. Market participants are of the view that IPP sales are unlikely to decline until the tension between Russia and Ukraine is resolved and commodity prices begin to stabilize.
According to Bloomberg, in past cases of large outflows of REITs from India, sales have generally declined when peak-to-trough outflows approached $8-10 billion, with the sole exception of the 2008 crisis. current sales fight has now surpassed that of 2008.
Among major emerging markets, Taiwan recorded the highest REIT sales so far in 2022, totaling $15.7 billion, followed by India, which recorded an outflow of $15 billion.
By contrast, Brazil attracted more money to the region with an inflow of $13.1 billion, as it bets on high exposure to the commodity bull cycle and cheap valuations.
Despite falling 10.2% from its October highs, the Nifty50 is currently trading at 18.9 times its one-year forward earnings. In contrast, the Brazilian Bovespa commands 7.7x, while Jakarta Composite and the Thai Stock Exchange are trading at 15.8x and 16.9x respectively.