REITs inject over ₹51,200 cr in August into the stock market. Will the trend continue? | Mint – Mint

NSDL data shows that FPIs pumped ₹1,963 crore from September 1-2 on the stock market. This is higher compared to their investment in the debt market which was around ₹119 crore, while outflows were seen in VRR debt and hybrid instruments for ₹523 crores and ₹24 crore.

Overall, REITs have invested ₹1,535 crores in the Indian market (including equity, debt, debt-VRR and hybrid) in the first two days of the current month.

In August, REITs made their biggest ever investment of ₹51,204 cr on the stock market since the beginning of the year. The inflow was also recorded in debts and debt-VRR instruments in ₹3,845 crores and ₹2,997 crores respectively. However, REITs were net sellers with an outflow of ₹1,525 crores in the hybrid market.

In the equity market, from January to June of this year, REITs released a record ₹2,17,358 crore. June was the best-selling month of the year with the release of ₹50,203 crore. However, due to buying in July and August, some equity outflows were clawed back.

So far in the equity market, REIT outflows are around ₹1,59,202 crore. That said, the equity market has seen a recovery of ₹56,193 crore in REIT sales due to July and August purchases. September started off on a volatile note, and whether the month will be as fruitful as the previous two months of Q2FY23 will be watched closely.

Will the REIT buying trend continue?

Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said: “September started with huge volatility in REIT flows. On September 1, REITs bought shares worth ₹4262 cr through exchanges, but the next day they sold shares worth ₹2261 cr. (Source: NSDL). This erratic trend is due to uncertainty regarding the dollar index and US bond yields. It is believed that the dollar and bond yields have peaked and that when inflation starts to decline the Fed will be less hawkish than it is today. This will facilitate more capital flows to emerging markets and India is the best emerging market to invest in right now.”

Explaining why the spike in the dollar and bond yields will have a limited impact on REIT sentiment, Vijaykumar added: “The other view is that since inflation is high, the dollar will continue to rise, which will a negative impact on capital flows to emerging markets. The trend on this is not yet clear. REITs will likely continue to invest in India. They have learned that exit is easy but entry is costly.

“REITs bought financials, capital goods, automobiles and consumer staples. This trend is likely to continue,” the chief strategist added.

According to analysts at ICICI Securities, Vinod Karki and Niraj Karnani expect the buying to continue in the second half of 2022.

In their strategy report, the duo said: “We believe the hawkish comments by the Chairman of the US Federal Reserve at the Jackson Hole symposium are an extension of the QT (quantitative tightening) cycle that began last year (CY21 ) and resulted in the largest quantum of REIT outflows from India over a one-year period ($33 billion for the TTM period ending June 22, including primary inflows).

“The massive outflow, in anticipation of the kind of extreme QT cycle of the 1960s-80s, was likely an overreaction that corrects itself via inflows seen since July 22,” the analysts added.

Looking ahead, the analysts said: “While not as extreme as originally thought, we continue to be in a QT cycle which will see bouts of volatility from REITs, although the phase of “unprecedented relentless selling” appears to be behind us. The path of US inflation will be a key determinant of REIT flows in general to emerging markets, including India. Overall REIT flows for CY22 may be clearly delineated in the selling phase of H1CY22 and now the resumption of buying in H2CY22.

Last month, US Federal Reserve Chairman Jerome Powell in the Jackson Hole speech alluded to keeping interest rates high to fight inflation at the expense of economic growth. This sparked fear among investors of an economic slowdown and cautious sentiments led to volatile conditions. The Street expected a slower pace of rate hikes after July’s inflation reading came in at 8.5% — better than expected — from a higher high of four decades of 9.1% recorded in June.

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