Where are FII’s parking their money?

Where are FII’s parking their money?

Last updated: 28 Jul, 2020 | 02:35 pm

Where are FII’s parking their money?

Consistent inflow in equities, continuing pressure in debt markets!

  • FII investment flows are a major factor in driving the direction of financial markets in India. 
  • After record FII outflows in March amid the Covid-19 induced market crash, FII equity investments in the following three months have had positive flows. This support from FII’s has helped the Indian equity market to stage a rapid comebackHowever, “FII’s have continued to sell their debt investments with July being the fifth consecutive month witnessing outflows.”

Why are FII’s pouring in money into the markets despite a gloomy economy?

  • Liquidity- The US Fed has so far poured in over $3 tn in aid to various facets of the US economy. This includes direct cash to citizens, direct loans to companies, and purchasing of all kinds of bonds.
  • This flood of money into the economy causes asset prices to rise- Hence you see US markets at all-time highs.
  • Spillovers of these stimulus funds are finding their way to global markets. “Within the emerging market ETF allocation, India currently finds about a 8.8% allocation of funds against HK/ China(mainland) of over 40%”

Sector Wise FII Flows Breakup

  • During April - July 15th, FII’s have dumped a massive $2.5 Bn (Rs19,000 cr). worth of investments in India’s Sovereign debt because of concerns of fiscal slippage, rating downgrade, and a weak macro outlook.
  • “The Household & Personal Products (HUL, Marico, Godrej consumer, Tata Consumer) which is amongst the sectors least affected by COVID received the highest FII inflow of almost $2bn (~Rs 14,000 cr)”.

INDMoney View

  • An influx of liquidity in the global markets has caused a sharp rebound rally from the March lows. The US Fed, RBI, and a lot of other central banks around the world have pumped money into the system. With unattractive interest rates, excess liquidity and savings are often pumped into the stock market.
  • In the debt segment, Risk aversion has been at its peak with Credit Risk Funds (which invest at least 65% of their assets in papers rated below AA+) seeing highest outflows, Their size has fallen from ₹55,380 crores on 1 April 2020 to ₹29,423 crores on 1 July 2020. The pain in the debt markets is yet to be seen, as moratorium gets lifted the number of defaults is expected to shoot up.
  • Both equity and debt markets are expected to remain volatile in the medium term
  • Invest in equities in a staggered manner. Keep your SIP’s running. Stick to large caps and index stocks that are best suited to navigate the economic crisis
  • Stick to high-quality AAA-rated low duration funds and bonds. Prefer safety over high yields in this volatile market.

Have questions? Click on the ‘Ask Advisor’ button to contact your family wealth office to help you identify the best investment options for you.