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Charts & Analysis

FIIs Buy Lots of Equity, Sell Lots of Debt in October

FIIs continue to sell in the debt markets in India, while they shower money on equities. With more than 10,000 cr. sold in debt in October, FII flows are flat for the month.

Net Monthly FII Investment

FIIs have already sold more debt (net of purchases) than all but the “bad” months of June and July 2013. In the last five months, FIIs have sold 69,000 cr. worth rupee debt, which is about $12 billion.

In the longer term, October is the third worst month ever, it seems.

Net Monthly FII Investment

Meanwhile the Nifty is close to hitting new highs. I wonder whether the sharp selling in bond markets will affect equities eventually, or will that reverse back as well?

  • DJ says:

    I think the debt selling is primarily a directional bet on interest rates going up. And, it has been the case across some set of emerging markets, not just India. I wonder that if interest rate futures were available on NSE, would FII outflow be lower because they could take short debt/long rate positions in the domestic futures market? Same with the domestic rupee market vis-a-vis the offshore markets.
    It would also make policy easier perhaps, since the market seems to be tilted towards demanding lower interest rates. But, if there was a liberalized interest rate futures market, the markets might have forecast higher interest rates… the corporate sector has indicated that it was aware of the rupee and rates risk due to high CAD, inflation etc. There just hasn’t been a transparent, liquid market to incrementally hedge and indicate that awareness. Even in the retail segment, we would have seen a lot of excitement in inverse debt and inverse rupee ETFs if they had been available.