Cash outflows affect the rupiah: a large chunk of REITs sell into banks and IT companies


By Ashley Coutinho

Risk aversion gripped global equities as major central banks stepped up their fight against rising inflation.

REITs have sold shares net worth $21.6 billion since war broke out between Russia and Ukraine on February 24.

During CY22, REITs shed the most financial services and information technology stocks, sectors which together have a weighting of around 50% in major benchmarks. Assets in custody of IT stocks fell 36% to $64.6 billion in the six months to June 30, 2022, while those of financial services firms fell 15% to $162.7 billion , according to data from NSDL.

“The REIT sell-off, trade imbalance and strengthening seen in the dollar index contributed to the rupiah’s slide, with the latter being the main culprit,” said Deepak Jasani, head of retail at HDFC Securities.

The dollar index has appreciated 3.6% in the past month and 13% since the start of the year.

“The trade deficit widened due to higher oil prices and this also created pressure on the rupee. The sale of REITs was also a contributing factor, but much of this sale was offset by IDE entries,” Jasani said.

He added that there is currently no reason for REITs to become heavy buyers and that they can use every market upside to dump stocks until the dollar and commodity prices stabilize. and geopolitical concerns subside. The benchmark BSE Sensex index slipped around 0.8% this week to 53,760.

“The current global slowdown is expected to impact corporate IT spending, which is why these stocks are under selling pressure. Banks are in a better position, with NPA issues well behind, and we expect the BFSI and automotive space to see renewed interest in the REIT after a few quarters,” said UR Bhat, Principal at Alphaniti Fintech.

Bhat hopes REITs will come back after a quarter or two, especially if inflation subsides and the likelihood of further interest rate hikes is reduced. “Commodity prices have come down a bit and inflation may calm down a bit in the future, especially if there is less disruption in the movement of food grains from Ukraine,” he said. he declares.

“India still enjoys a valuation premium relative to its peers, given superior corporate fundamentals. In an environment of high inflation and aggressive central bank tightening, downside risks to earnings growth are emerging. While we do not expect a major earnings reduction for Indian equities, some moderation in earnings growth cannot be ruled out, particularly if global headwinds worsen further. Against this backdrop, we believe equity volatility could continue as multiple headwinds impact investor sentiment,” Credit Suisse said in a recent note.


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