Tag: US bond yields

FPIs dump Indian equities worth Rs 6,300 crore in April, here’s why

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Foreign investors pulled out domestic equities worth ₹6,300 crore in April on concerns over tweaks in India’s tax treaty with Mauritius and sustained rise in US bond yields.

This came following a whopping net investment of ₹35,098 crore in March and Rs 1,539 crore in February, data with the depositories showed.

Foreign Portfolio Investors (FPIs) made a net outflow of ₹6,304 crore in Indian equities this month (till April 26), the data showed.

“The trigger for this renewed FPI selling, in both equity and debt, is sustained rise in US bond yields. The 10-year bond yield now stands at around 4.7%, which is hugely attractive for foreign investors,” VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.

While the tweak in India’s tax treaty with Mauritius on investments made in India via the island nation continues to bother foreign investors, weak cues from the global markets with uncertain macro and interest rate outlook did not augur well for emerging market equities, Himanshu Srivastava, Associate Director – Manager Research, Morningstar Investment Research India, said.

Additionally, a surge in commodity prices, especially oil and higher US retail inflation dashed hopes of an early rate cut by the US Fed thereby triggering a surge in the US 10-year yield. This would have possibly prompted foreign investors to adopt a wait and watch approach, he added.

The positive factor is that all FPI selling in the equity markets is getting absorbed by domestic institutional investors (DIIs), HNIs (High Networth Individuals) and retail investors. This is the only factor that may reign in FPI selling.

Apart from equities, FPIs withdrew ₹10,640 crore from the debt market during the period under review.

Before this, foreign investors invested ₹13,602 crore in March, ₹22,419 crore in February, ₹19,836 crore in January. This inflow was driven by the upcoming inclusion of Indian government bonds in the JP Morgan Index.

JP Morgan Chase & Co. in September 2023 announced that it will add Indian government bonds to its benchmark emerging market index from June 2024.

This landmark inclusion is anticipated to benefit India by attracting around USD 20-40 billion in the subsequent 18 to 24 months.

Overall, the total inflow for this year so far stood at ₹4,590 crore in equities and ₹45,218 crore in the debt market.

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US may see a shallow recession from January-July 2024, BNP Paribas predicts

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The world economy has been grappling with imbalances, including trade disparities and debt levels. These imbalances, if not addressed effectively, could contribute to economic headwinds.

In an interview with CNBC-TV18, Manishi Raychaudhuri, Head of Asia-Pacific Equity Strategy at BNP Paribas Securities, shared his perspective on what lies ahead for the global economy. Raychaudhuri believes that the first two quarters of 2024 might witness the emergence of a shallow recession.

Below is the verbatim transcript of the interview:

Q: Are we beginning a bit of a global correction, in your opinion? What is your global team’s view?

A: The correction began some time ago. It coincided, and not surprisingly, with the US bond yields spiking. In this particular case, it was accompanied, somewhat surprisingly, by global energy prices, oil prices, also going beyond $90 per bbl, now approaching $95 per bbl. And both these variables are actually not quite helpful for Asian equities, particularly Indian equities. We have seen consequently, the Asian currencies depreciating, and we think that this situation is likely to continue for some more time.

So, essentially, this is not really an India-specific phenomenon, we are seeing it across emerging markets. Whenever you have the US dollar appreciates, the US bond yields spike, and there is a flow of money in favour of safe-haven destinations like the US markets. And this kind of situation may continue for some more time. Now, having said this, India is in somewhat of a sweet spot when it comes to the protection that the market has because of domestic fund flows, this is something kind of unique to India, almost no other emerging market has this advantage to the extent that India does.

So, I would think that the entire emerging market complex, the Asian markets would possibly continue to have some correction that said, the outperformance by India, even in that corrective phase would likely continue.

Q: To labour on that point that you were making about the global markets getting into a tired, sideways movement, as you call it in your report, you are saying this, currently, what we are seeing is similar to what happened in 2000-2003. At that time, the market declined, and then it drifted throughout the Fed’s rate cut period as concerns about a sharp economic slowdown became apparent. And the recovery started only after the Fed rate cuts were almost over, as the liquidity injected began seeping into the various financial assets. So are you saying we are in this grinding kind of period for a very long time, even as the Fed starts its rate-cutting cycle perhaps sometime next year, markets are still not going to react positively.

A: I would think that this tired, sideways movement, which is correctly quoted from my report, is likely to continue for maybe another three quarters or so till the middle of 2024. We are in exactly that phase, which we encountered from mid-2002 to mid-2003 where the markets were directionless, the earnings estimates were kind of coming down, but very selectively staying stable and we are possibly in that kind of a situation right now.

What would be necessitated to take the market out of fear, we clearly need to come out of the recession narrative and that narrative, unfortunately, is likely to continue until and unless the recession is actually over. Our global economics team thinks that that period will coincide with the first and second quarters of 2024, where we will have a shallow recession, which is a recession nonetheless, in the United States.

Mid-2024 would also coincide with hopefully by the end of this higher period for a longer period. We think there could possibly be one more rate hike in November, but after that, there will be an extended period of higher for longer, maybe for another three quarters and rate cuts would commence only in the second half of 2024. So, when I put all this together, the macro variables would turn favourable for risk assets, only in the second half of 2024 and till then, I am afraid, we may have to contend with this sideways movement.

Q: What about HDFC Bank? It has already been underperforming. It is not even sideways, it’s actually down close to around 7 percent and in the last 10 years, we have not had a single year when HDFC Bank has given negative returns, and we just have three months to go. So, hopefully, it keeps that record in terms of positive closes in a calendar year. You have liked private sector banks, where does HDFC Bank feature in that list?

A: I would not obviously comment on stock specific here, but in general we do like the private sector banks in India, and we focus on those banks, which are gaining market share. The entire gamut of private sector banks in India are gaining market share over the PSU banks, but even within that set, there are a few which are actually more adept at cost-cutting because of the better technology that they have.

They are also gaining market share as a consequence of the better technology that they possess, and those are the banks that we are focusing on. So certainly, that is the story that would pan out, not just over the next one to three years, but even for much longer.

Q: We are in a place where oil prices are up 30 percent from June, the dollar is higher, etc, but on Friday, September 22, we got the global bond index news flow. So, should we look at the two big global variables for India – the dollar and oil – a little differently? It would still hurt, but maybe, to a lesser degree, what’s your sense?

A: I do tend to agree with that. If one looks at the global bond index inclusion, from the debt markets we have the feedback that it would lead to anywhere between 25 and 30 billion inflows on the lower end of the estimate range and possibly somewhere around 45 to 50 billion on the higher end of the estimate range. So that’s significant. And that inclusion is happening in June 2024, which would obviously have a salutary effect on the currency.

Now, that said it is going to be a long-drawn-out affair. It will basically pan out over the next 9-10 months and before that, we will have to contend with higher fuel prices. We must also keep in mind that we are entering the winter season where obviously, there is a degree of pressure on the oil prices in the upward direction. What we have to contend with is the near term, when oil prices would likely continue to be firm, we are entering the winter season now.

So, I think when it comes to this question of currency, there is a degree of difference between the near term and the longer term that investors would have to contend with.

Q: What are your thoughts on Indian industrials? In your portfolio, you do have holdings in L&T and BEL. So, you are playing the Indian industrial space. The question is, how long do you think this government capex will continue? They have been spending massively, but can we assume this kind of government spending for the next 3-5 years? Are we closer to the end of this upcycle in industrials or it has just gotten started, and you would play it for the next three to five years?

A: We would definitely play the government capex theme and therefore, the consequent spilling over into private capex; we must remember that private capex hasn’t really started in a big way yet. You rightly point out and this is something we have been arguing as well that if you look at government capex in infrastructure, railways, in defence all put together, capex as a proportion of total government spend has skyrocketed over the last three years, it used to be about 17 percent of total government expenditure, it has gone to about 25-27 percent. The only risk to this could be a spike in the fiscal deficit. Now, if I look at the tax collection that we are witnessing at this point in time, that does not seem to be a very potent threat at this point of time.

So, looking at the government’s intentions in terms of supporting capex and improving infrastructure. I would be willing to bet that this government capex would likely continue for over the next two to three years at least and the spillover effect into private capex would possibly accelerate. So yes, we are currently overweight, we have a significant allocation to Indian industrials in our model portfolio and we see no reason to alter that.

For more details, watch the accompanying video.

Also, catch all the live updates on markets with CNBC-TV18.com’s blog

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No reason why Nifty can’t have another 8-10% rally, says Marathon Trends’ CEO Atul Suri

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Even as the Nifty50 index achieved a significant milestone on Monday, the beginning of the trading week, market experts are still much buoyant about its rally further ahead.

On September 11, the index touched the 20,000 mark after 52 trading sessions following its attainment of the 19,000 mark. This remarkable performance represents a doubling of the index’s value over the span of six years, having initially crossed the 10,000 mark on July 25, 2017.

The latest upward movement on Monday has contributed to the Nifty 50’s year-to-date gain of 10.5 percent. Remarkably, the index has consistently delivered positive annual returns, even during the challenging years of the Covid-19 pandemic, since the modest 4 percent decline it experienced in 2015.

Sharing important insights on the current market trends and the outlook for the Nifty index in an interview with CNBC-TV18, Atul Suri, CEO of Marathon Trends-Portfolio Management Services, said that there is ample room for Nifty to continue its upward trajectory.

He began by asserting his confidence in the Nifty index, stating that there is “No reason why Nifty can’t have another 8-10 percent rally.”

Moreover, Suri emphasised that he still sees “More upside going ahead.” This perspective reflects his anticipation of further positive movements in the market, backed by factors that are conducive to sustained growth.

“There is a lot of panic, there is a lot of talk of bubble, but I do not think we are anywhere near bubble territory,” he said.

Suri’s bullish outlook on the Nifty index is grounded in his analysis of current market conditions and trends and it’s clear that he remains optimistic about the market’s performance.

For more details, watch the accompanying video

Also, catch all the live updates on markets with CNBC-TV18.com’s blog

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Inflation not a significant problem for India; banking sector looks interesting: Morgan Stanley

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Even as peace talks emerge amid the raging war between Russia and Ukraine, markets are unsure if a ceasefire and consequent decline in surging commodity prices including crude oil are at all possible.

To discuss and understand the big themes of 2022, CNBC-TV18 spoke to Jitania Kandhari, deputy CIO, portfolio manager for active international allocation, and head of the macro and thematic research for the EM equity team at Morgan Stanley.

First up, Kandhari stressed that the peak of inflation is not here yet. She highlighted that emerging markets like India do not have a significant inflation problem.

She said, “Markets like India do not have such a significant inflation problem. It’s the US and Europe that have more of a problem because of the gas prices there. Some of the poorer countries where food and energy is a large part of the CPI and where food and energy are imported, you will see inflation issues in some of those smaller countries in emerging markets (EMs).”

On crude oil price inflation in India, she said that she isn’t too worried about it. She expects India to follow the US market in terms of patterns. Additionally, she mentioned that the Indian banking system looks interesting if the credit cycle restarts.

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According to her, emerging markets would see a comeback and domestic economies will do well. She expects Latin America and Indonesia to benefit from the boom in commodity prices.

“Countries like Latin America or Indonesia, Malaysia will benefit from the commodity price boom and I am positive there. There are other pockets where domestic demand in this de-globalising world, where supply chains are getting domestically oriented, where the world is just turning overall inward. So, domestic economies will do well,” said Kandhari.

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In the US, she said that the economy would see a slowdown. However, detailing on the yields, she clarified that they aren’t signalling a recession. She added that historically, mid-term election years have always been volatile. The average drawdown in S&P500 in a mid-term election year is 18 percent, she shared.

She said, “What’s important for the market is going to be earnings but the other piece here is the mid-term election year in the US. So, in the history of the election cycle, the mid-term election year is always a volatile year and this has been a pattern that has been consistent in every presidential cycle and that means a volatile year. The average drawdown in the S&P in the mid-term year is 18 percent versus between 12 and 13 percent on an average year.”

Watch the video for the full interview.

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India great long-term growth story; cyclically better positioned than most Asian markets: Credit Suisse

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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India is a great long-term growth story and is cyclically better positioned than most Asian markets, said Dan Fineman, Co-Head of Equity Strategy-Asia Pacific, Credit Suisse, on Tuesday.

“India valuations are trading at larger than the historical premium to EMs,” said Fineman in an interview with CNBC-TV18, adding he prefers India over China.

According to Fineman, India should see positive momentum with respect to EPS and GDP revision.

Fineman says he continues to see significant headroom for global markets.

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“Policy in the US will stay accommodative even if we get two rate hikes next year,” he said.

According to research, Fineman says, higher rates can be positive for markets until a certain level. “We found in our research is that rate hikes can be positive for the markets, up until a certain level. Usually, the danger point comes when long-term bond yields get above 2 percent or when inflation gets above 3 percent, but up until that point higher rates; whether market rates or Fed rates, tend to be associated with strong equities returns,” he said.

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Long-term US bond yields above 2 percent could be negative for markets, said Fineman, adding crude prices are at peak levels.

He expects more supply to bring down prices.

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Explained: Why are US yields falling and how would it impact India and EMs?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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US Treasury 10-year yields fell 1.15 percent Monday—its six-month low after data showed the US manufacturing sector expanded at a slower pace in July as compared to the previous month. Investors also eyed the spread of the Delta variant of coronavirus.

The yield on the benchmark 10-year Treasury bill dropped 8 basis points to 1.15 percent. At the same time, the yield on 30-year bonds also dipped 5 basis points to 1.836 percent. Bond yields and prices move in the opposite fashion. When yields increase, prices are bound to drop.

Treasury yields had climbed as high as 1.74 percent in April, their highest level in the past year. While rising yields indicate that investors are expecting growth, lower yields point to the opposite. This flattening of the US bond yields curve over the last few weeks has surprised the markets a fair bit, Sameer Goel, Head of Asia Macro Strategy at Deutsche Bank told CNBC-TV18.

Investors have been worried about the rising spread of the Delta variant hampering the global economic recovery. Stateside, the seven-day average of daily cases reached over 72,000—higher than it was in 2020. When investors doubt the prospects of economic recovery, they flock to safe-haven bonds.

There are also technical factors in play, but majorly it is due to the lack of supply in the treasury markets, Goel said.

“But at the same time, the market is concerned about what our new state of normal would be, beyond covid. Because if you look at the equilibrium level of real rates being priced in the market, they are at the levels before we knew about vaccinations or stimulus in the US. In some sense, the market has become very bearish on the growth prospects,” he argued.

Market expectations since have fallen, as shown in the fall in the US treasuries.

“(Market has become bearish on growth prospects) to the extent that there has been a gap between where the taper happens and when the lift-off does. It is less about the peak cycle move, more about where are long-term real equilibrium rates and where therefore the balance between the savings and investments in the economy will end up being,” Goel added.

The dominating narrative is the idea that a higher level of precautionary savings in this post-COVID world is going to stay. If that happens, our real rates may perpetually stay low, Goel argued.

But how would this impact India and other emerging markets?

Suyash Choudhary, Head of Fixed Income at IDFC AMC said it depends on a set of short-term factors, including demand-supply positioning and COVID-19.

For full interview, watch the accompanying video.

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Gold hovers near seven-week peak as US bond yields slips

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Gold prices held steady near their highest since late-February on Friday, en route to their second straight weekly gain, boosted by a drop in US Treasury yields and a weaker dollar.

Spot gold was flat at $1,762.70 per ounce by 0740 GMT, after hitting its highest since Feb. 26 at $1,769.37 on Thursday. Bullion is up more than 1 percent so far this week.

US gold futures eased 0.1 percent to $1,763.80.

“We’ve seen that the 10-year yield has pulled back and has broken through that very important 1.6 percent level… that probably means there is more weakness in yields, at least near term, which is very supportive for gold,” said DailyFX currency strategist Ilya Spivak.

Benchmark US Treasury yields slipped to a one-month low, reducing the opportunity cost of holding non-interest bearing gold. The dollar headed for its worst back-to-back weekly drop this year.

Meanwhile, data showed China’s economy grew at a record pace in the first quarter, expanding 18.3 percent from a year earlier.

Recent economic readings from the United States and China lifted hopes around a swift economic recovery and prompted investors to seek riskier assets.

Earlier this week, Federal Reserve Chair Jerome Powell and other Fed officials, said the brighter economic forecasts and a brief period of higher inflation will not affect monetary policy and the central bank will keep its support in place until the crisis is over.

“In the long run, some amount of inflation, due to the massive influx stimulus money, will keep gold supported,” said Stephen Innes, chief global market strategist at financial services firm Axi.

Gold tends to benefit from widespread stimulus measures from central banks because it is widely viewed as a hedge against inflation.

Silver slipped 0.1 percent to $25.84 per ounce. Palladium was up 0.2 percent at $2,744.91, and gained about 4 percent for the week. Platinum climbed 0.4 percent to $1,198.04.

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Asian equities witness foreign outflows for third month in March

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Foreigners were net sellers of Asian equities for the third consecutive month in March, as higher US bond yields and a stronger dollar prompted outflows from the region. Overseas investors sold a net combined total of USD 3.18 billion in South Korean, Taiwanese, Philippine, Thai, Vietnamese, Indonesian, and Indian stocks last month, data from stock exchanges showed.

While Asian equities looked lucrative at the start of this year on bets over the region’s faster recovery from the pandemic compared with Western countries, outflows in the first quarter suggest a reversal in sentiment.

A spike in US bond yields and concerns over tightening China policy drove a rotation out of long-duration assets and may further affect the regional equities in the second quarter, Goldman Sachs said in a report.

The brokerage referred Asia’s internet, media, and other high growth sectors such as biotech and healthcare as long-duration stocks as they are more sensitive to the rise in yields.

Taiwan and South Korea, which house many high-flying tech stocks, faced the biggest outflows in the region, witnessing net sales of USD 3.2 billion and USD 1.3 billion, respectively.

Foreigners continued to exit Philippine equities for the 17th consecutive month March, struck by fresh lockdowns in capital Manila and nearby provinces after a surge in new coronavirus cases. However, India lured inflows of USD 1.6 billion, despite a surge in infections last month.

”India has bucked the trend as investors buy into the country’s recovery story,” said Mitul Kotecha, chief emerging-market Asia and Europe strategist at TD Securities in Singapore. ”(But) a renewed increase in virus cases and lockdowns in India could dampen recovery expectations and inflows in the weeks ahead.”

Vietnam and Thailand also faced outflows last month.

However, Indonesia obtained an inflow of USD 800 million on optimism that the country would emerge from a pandemic-induced recession in the second quarter.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow