Equity indices declining over 2% but rupee stabilized around 66.20/USD

Indian financial markets faced another bruising session on Tuesday, with equity indices declining over 2% but rupee stabilized around 66.20/USD by close. Cues from the overnight session - US equities closed down ~2.8% - sets the stage for another flat/weak open for the Asian markets today.

Foreign portfolio investors (FPIs) sharply lowered their exposure to Indian equities in August, down by USD 2.6bn (see chart). This marks the highest monthly outflows since late 2008, according to data from the securities regulator. By contrast, debt markets faced modest USD 0.1bn outflows. Foreign ownership of Indian debt, still low at 3-4% of overall outstanding issuance, stood at 99.98% of the debt limit by late-August. Rate cut expectations, captive domestic market for government debt papers and economy's improved external balances have been key draw factors.

Notably, the quantum of hot money flows into Indian equities is much higher than in debt. Cumulative inflows from year 2000 put debt flows at a third of that into equities', which explain why these outflows are worrisome.

Source : Equity Bulls

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