Ritika Dange, Riken Mehta
According to Securities and Exchange Board of India (Sebi), foreign instituitional investors (FIIs) offloaded about Rs 2136 crore worth equities on Thursday, highest since May 13, 2011 ( Rs 3706.4 crore).
Thursday saw the Sensex tank over 500 points, its steepest crash since February 27, 2012. What triggered this sharp fall was US Federal Reserve chairman Ben Bernanke’s decision to taper the country’s monetary stimulus program- the quantitative easing 3 (QE3).
Bernanke said the bond buying program, to the tune of USD 85 billion per month, will be slowed down over the coming months and will be brought to a complete halt by mid 2014. Bernanke’s speech sent global markets in a frenzy seeing a fall in equities, commodities and currencies as investors panicked at the thought of a slowdown in foreign capital flows into the markets.
End to cheap liquidity
Most global markets were funded for long by cheap liquidity from various countries monetary stimulus programs- the United Kingdom’s long term refinancing operation (LTRO), the Unites States’ quantitative easing (QE) and Japan’s bond buying program. Banks across the globe used this liquidity to invest in various asset classes to earn quick returns rather than lending it to borrowers to kickstart the economy as expected by respective central banks.
Weak fundamentals, dismal earnings, high company debts and a prolonged political logjam deterred companies from posting positive returns for FIIs on their investments.
What came as a double whammy was the depreciating rupee that saw its all time low of 59.93 against the dollar- a figure far higher from the average dollar rate of 51.80 for the past two years (May 2011-May 2013). This translates into a 15 percent loss for the FIIs on currency conversion based on the current exchange rate of rupees 59 per dollar.
As a testimony to the weak sentiment prevailing among investors, FIIs pulled out capital worth Rs 1768 cr (provisional) from equities on Friday.