US Fed: Are FIIs predicting the peak of US Fed’s quantitative tightening cycle?

Well before the US Federal Reserve began its aggressive rate hikes and balance sheet trimming in May this year, the flow of FIIs on Dalal Street turned negative in October 2021. By June, the Foreigners’ Club had sold an unprecedented $33 billion worth of Indian stocks.

From July, FII flows towards India and other Emerging Markets (EMs) started to turn largely positive with moderate bouts of selling. “The above behavior could be another signal that the Fed’s aggressive rate hikes may be nearing their peak (final rate of 4.5-5%)”

said analysts Vinod Karki and Niraj Karnani in a research report.

However, future strong outflows from emerging markets like India could suggest that the current expectation of a 4.5-5% final interest rate for the US will be breached to the upside going forward and remain a key risk, analysts said.

FII’s ownership of Indian equities was Rs 46 trillion at the end of September, accounting for 17% of all listed Indian equities.

The decline of the Indian market is being cushioned by domestic flows, which have been boosted by India’s ETF revolution. “Equity ETFs AUM was Rs 3.7 trillion as of September 2022 compared to total equity-focused mutual funds AUM of Rs 15.8 trillion (excluding ETFs and hybrid funds). rapid growth while equity-focused mutual fund AUM has grown 4.5x since fiscal 2016,” the report said. US Fed: Are FIIs predicting the peak of US Fed’s quantitative tightening cycle?

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