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The exodus of REITs continues; withdraw ₹46,000 cr from Indian stocks in June

Foreign investors continue to desert Indian stock markets and have retreated nearly 46,000 crore so far this month on the back of monetary policy tightening by the US Reserve Bank and Federal Reserve, high oil prices and rupee volatility.

The net outflow of foreign portfolio investors (FPIs) in equities reached 2.13 lakh crore through 2022, according to custodian data.

Given policy normalization talk from the US Fed and other major central banks, coupled with high oil prices and rupee volatility, REITs should stay away from emerging market assets, said said Hitesh Jain, Senior Analyst – Institutional Equities, Yes Securities.

The influx of REITs will only pick up once there is visibility on peak US bond yields and the end of Fed rate hikes, he added.

Additionally, REITs are likely to sell more if the current upward trend in the dollar and bond yields persists, said VK Vijayakumar, chief investment strategist at Geojit Financial Services.

According to the data, foreign investors withdrew a net amount of 45,841 crores of shares in June (until the 24th).

The sell-off by REITs continued in June as they relentlessly took money out of Indian stocks since October 2021.

“RBI monetary policy tightening and global commodity price inflation have mainly led domestic markets to bleed in terms of substantial cash outflows from equity markets over the past few months,” Manoj Purohit, Partner & Leader – Financial Services Tax, BDO India, says.

The pace of these withdrawals was last seen when the pandemic broke out in the first quarter of 2020.

Globally, the ongoing military conflict between Ukraine and Russia, rising federal rates and the return of the pandemic outbreak have further added fuel to the fire, Purohit said.

Vijayakumar of Geojit Financial Services said the rising dollar and rising US bond yields are the main factors triggering REIT exits.

Another important aspect that has contributed to the exits from domestic equity markets is its valuation, which continues to be higher, despite the recent correction, compared to other comparable markets, said Himanshu Srivastava, Associate Director – Manager Research, Morningstar India.

It has also led foreign investors to make profits here and focus on other markets, which are attractive in terms of valuation and risk-reward ratio, he added.

Interestingly, the bulk of REIT sales are in well-performing segments such as IT and financials and domestic institutional investors (DIIs) absorb this liquidity.

In contrast, REITs invested a net amount of approximately 926 crore in the debt market during the period under review.

The net inflow can largely be attributed to REIT parking investments from a near-term perspective following the lingering uncertainties, Srivastava said.

Overall, from a risk-reward perspective and with interest rates rising in the United States, Indian debt does not appear to be an attractive investment option for foreign investors, he added.

BDO India’s Purohit believes that this pattern of short-term negative volatility should slow in the coming weeks if not fully reversed.

“India is still on better footing than other global markets, mainly due to sustained growth patterns, better GDP figures, recovery of foreign exchange reserves, steady consumer demand and good numbers. financial backers of large corporations,” he added.

Besides India, REITs are selling heavily in other emerging markets like Taiwan, South Korea, the Philippines, Indonesia, and Thailand.

This story was published from a news feed with no text edits.

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