Egypt's growing unrest to keep FII on sell mode

Current withdrawal from the local markets by ETFs was unlikely to end in the near term and the global investors' portfolio readjustments among the emerging market asset classes, triggered by concerns over inflation, rate increase and continuing unrest in many of the Arabic-speaking world, would not benefit Indian equities, the fund managers to overseas investors here told Business Line .

The continuing crisis in Egypt for more than a week has its indirect bearing on the Dalal Street valuations through rising prices of oil and food items in the global markets.

The Egypt impact would primarily be felt on account of higher crude and gas import bills on top of already existing concerns over inflation, particularly food inflation, and further rate hikes, said Mr Arindam Ghosh, CEO of Mirae Asset Management.

“ETFs are sellers now and the churning by the long-only funds are not favouring local equity assets,” he added. Among the BRIC markets, Brazil and Russia (because of their higher resource reserves such as oil and minerals) are likely to fare better in the short-term.

“Global investors have realised that in the past few years' enthusiasm over the top emerging markets like India has been overdone,” said Mr Saurabh Mukherjea, head of Equity at Ambit Capital.

The contagious unrest across Arabic-speaking nations such as Tunisia, Egypt, Jordan and Yemen proved to be an additional geopolitical risk for the equity street and provided excuse for playing safe.

“Foreign investor would love to wait a while. They would rather miss the bus now, and not take the mega risk. Overseas investors would like to follow the prudence Catch the bus at higher level — 5 per cent or so would be a prudent strategy,” said Mr U.R. Bhatt, Managing Director of Dalton Capital Advisors.

Egypt, one of the second line emerging markets, saw its stock and financial markets non-functional since last Thursday (January 27) and was likely to witness a sell-off if it re-opens. Incidentally, Goldman Sachs' arm launched a new fund that Next 11 or the ex-BRIC frontier emerging markets that included Egypt a day before Egyptian unrest took a decisive turn.

Hedge funds such as GEM funds were the principal sellers; some had to face margin calls initiated by their long Egyptian positions, the market watchers said. Saudi Arabia's stock exchange-listed Emaar Properties, which has four major projects in Egypt representing 10 per cent of its asset, has been under pressure.

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