The foreign sale of Indian stocks has hit its highest level since the global financial crisis, sending valuations of major stocks plummeting as Narendra Modi’s government plans to use a public insurer’s listing to plug holes in the national budget.
The net sale of $4.5 billion in shares in January marked the largest monthly divestment since the start of the coronavirus pandemic, and came as India Sensex reversed most of the initial gains that had made one of the best performing major indices in early 2022.
Investors said geopolitical uncertainty and central bank tightening had accelerated foreign outflows. “The Ukraine crisis and impending Fed rate hikes have jittery the most opportunistic global investors, triggering a move in risk,” said Praveen Jagwani, managing director of UTI International, an Indian asset manager.
The January sell-off marked the fourth consecutive month that global investors cashed in Indian stocks and lifted net sales for the period to $9.3 billion. That amount is close to the record $9.9 billion spilled over a seven-month period during the global financial crisis, according to a Financial Times analysis of data from the Securities and Exchange Board of India.
Fund managers and analysts said much of the selling stemmed from investors closing positions during a rally that sent the Sensex up 22% last year.
“What’s driving the sell is more profit taking than anything else,” said Jayesh Gandhi, head of offshore services and portfolio management at BNP Paribas Asset Management India. “Investors bought massively in India in 2020 and 2021, and now they’re taking money off the table.”
On Tuesday, the Sensex received a boost of more than 1% following the announcement of India’s annual budget. Investors are expected to watch market sentiment closely as Modi’s government pursues the listing of the state-run Life Insurance Corporation of India to reduce the projected deficit for the 12 months from April of 6.4%.
Vasudev Jagannath, equity analyst at IIFL Securities in Mumbai, said domestic traders were focused on the budget and the upcoming elections in four major states from the end of the month, both of which would set the tone for Indian markets this quarter. .
“These are important macro events that investors are watching and they will certainly affect sentiment for any IPO that materializes,” he said.
The timing of LIC listing is vital as New Delhi expects the sale of shares to help its spending plans for the coming year, which begins in April. An official valuation will only be available in LIC’s prospectus, but the government has previously estimated the company’s value at $203 billion.
“They must offer at least 5% of the shares, but beyond that has not yet been decided,” said a banker at one of the 10 banks involved in the agreement, including Goldman Sachs, Citi and Bank of America.
The banker added that there had been “no discussion” on pricing or the size of the deal, but based on the government’s previous estimate, a sale of 5% stake would yield more than 10, $2 billion, four times the $2.5 billion brought in by fintech company Paytm. in November.
The banker expected the IPO, which will make LIC one of India’s largest companies by market capitalization, to be completed this quarter. Despite continued selling by foreign investors, India’s legion of retail traders is expected to show up in force for the biggest IPOs of the year.
“The appetite for Indian stocks among domestic investors is still very strong,” said BNP Paribas’ Gandhi. “Real interest rates are negative in India, which is why retail investors are turning to equities.”