“FII selling has been across emerging market debt due to a risk-off sentiment, given the conditions surrounding global financial markets.
This is largely due to the Covid-19 outbreak and the news
flow on the outbreak will be a key factor in how flows shape up,” said A Prasanna, head of research, ICICI Securities Primary Dealership.
According to the Washington-based Institute of International Finance, outflows from emerging market debt in March stood at $31 billion, which is the highest monthly outflow since the global financial crisis in October 2008.
The recent global fund manager survey by Bank of America Global Securities has showed that investor sentiment has collapsed due to a combination of linked factors, including the build-up of recessionary pressures, rising risks of debt defaults, price shocks on oil, and the coronavirus
The intense selling pressure led to a spike in yields across segments of debt, given the shallow liquidity of the domestic markets.
The liquidity pressures created by FII selling prompted the Reserve Bank of India (RBI) to intervene with Rs 3.74 trillion liquidity enhancement for debt markets last week.
The shorter-tenure debt papers had seen a spike in yields of 100-150 basis points, leading to mark-to-market losses for investors exposed to them.
According to market sources, FIIs have also sold Rs 8,000-10,000 crore worth of debt securities in the shorter-tenure market in March.
Market participants said as and when the issues surrounding coronavirus
and other related factors stabilised, flows could pick up sharply.
“Overseas investors have an appetite for Indian debt markets, given the higher yields, but the current market environment has been challenging,” said an analyst.