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Foreign investors cool off at home, FPI flows to D-Street slip for now

The fall in activity from FPIs is one of the key reasons for lower volumes on the Indian bourses.

, ET Bureau|
Last Updated: Mar 06, 2020, 08.03 AM IST
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AP
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The four countries put together are home to over 1,500 funds which constitute 10-15 per cent of the foreign portfolio volumes in India.
The outbreak of novel coronavirus is choking flows into Indian stocks from foreign funds domiciled in Japan, Germany, South Korea and China, said people with direct knowledge of the matter. With the daily functioning of most of these funds in these countries disrupted due to office closures and travel bans, money managers have been deferring investment decisions, waiting for the virus to subside.

The four countries put together are home to over 1,500 funds which constitute 10-15 per cent of the foreign portfolio volumes in India.

“Most of our clients from China and South Korea have not been able to raise funds from their domestic investors and hence are placing fewer trade orders,” said a senior official at a European bank. “The fund houses have asked their employees to work from home and concentrate only on those markets where their fund has major exposure. India usually isn’t their prime focus.”

The fall in activity from FPIs is one of the key reasons for lower volumes on the Indian bourses. Total derivative trading volume fell 22 per cent in February while cash markets saw the total volumes go down by 2 per cent. The benchmark Nifty has fallen 7 per cent since February 20.

Most of the big-ticket FPIs in India are large mutual funds from these countries. Their trades depend on the investments coming from various local funds.

Japan and South Korea are the countries which saw the biggest dip in trading volumes, market participants said. After the government did away with the tax benefits in case of Mauritius, several big funds set up a part of their operations in South Korea, since it still enjoys beneficial tax agreement with India.

The coronavirus has infected more than 95,000 people and killed at least 3,300 worldwide, according to reports. After the virus was first identified in China in the last week of December, it has spread to countries such as South Korea, Japan, Iran, parts of Europe, and the US.

Many FPIs from some of these countries did not participate in the SBI Cards’ initial public offering, which closed for institutional investors on Wednesday.

“Most of our Japan or Germany based clients have not applied for the ongoing SBI Cards IPO even though they were very keen on it during roadshows,” said a top executive with a global custodian. “Nevertheless, the issue received sufficient response because of the strong interest from the US and UK- based funds.”

Volumes are expected to remain tepid for at least another month as most of these countries are awaiting the outbreak to be contained. “We are keeping fingers crossed about vulnerability of other countries as well. There are reports coming from countries like Australia and France on rise of number of cases being detected,” said the top official of an US bank.
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