Investors dump Indian assets as energy shock sends rupee sliding

{"text":[[{"start":10.35,"text":"Foreign investors have dumped Indian stocks during the Iran war at the fastest pace on record, as surging energy costs send the rupee to historic lows and raise fears of a ballooning current-account deficit."}],[{"start":22.45,"text":"Overseas investors have pulled almost $21bn from Indian stocks since the US and Israel started bombing Iran on February 28, including almost $13bn in March, by far the biggest monthly outflows on record according to securities depository NSDL."}],[{"start":41.15,"text":"The rupee has fallen to a historic low of more than 95 to the dollar, having entered the war at about 91. Bond prices have slumped, sending 10-year government borrowing costs for the world’s fastest-growing major economy to an all-time high above 7.1 per cent in late April, from 6.7 per cent before the conflict."}],[{"start":63,"text":"“When the war started, the first reaction was ‘India is one of the [world’s] largest importers of energy’,” said Suvodeep Rakshit, chief economist at Kotak Institutional Equities. “It becomes a natural choice, that this is not the country I would want to be invested in.”"}],[{"start":null,"text":"

"}],[{"start":78.7,"text":"India is the world’s third-biggest energy importer and relies on other countries for 90 per cent of its oil and gas. It spent $174bn on such imports in the year to March 31, with half of imported crude and two-thirds of natural gas coming from Gulf countries whose energy exports have been all but shut down by the war."}],[{"start":100.6,"text":"It has turned to other sources to make up the shortfall, including buying oil from Russia after the US waived sanctions to allow sales to India."}],[{"start":110.14999999999999,"text":"“The volume of energy purchases hasn’t changed but the costs have gone up, and that’s putting pressure on the currency,” said Sunil Tirumalai, chief emerging market equity strategist at UBS. "}],[{"start":null,"text":""}],[{"start":121.19999999999999,"text":"Tirumalai noted that while South Korea and Taiwan had been able to accumulate dollars during the war by selling microchips to meet the huge growth in AI-related demand in the US — attracting portfolio inflows at the same time — India’s stock market outflows had added to pressure on its currency."}],[{"start":139,"text":"The rupee was already Asia’s worst-performing currency this year before the war began, thanks to India’s growing trade deficit and a slump in foreign direct investment in productive assets. "}],[{"start":150.4,"text":"It was down 10 per cent before the war and has spiralled more than 4 per cent since, hovering above 95 to the dollar despite multiple interventions by the central bank that cut the country’s foreign exchange reserves by more than $40bn from the end of February, before a partial recovery."}],[{"start":170.6,"text":"“It’s a double whammy of sorts,” said Rakshit. “What was a . . . capital flows problem is now a capital flows plus current account problem.” "}],[{"start":null,"text":""}],[{"start":179.5,"text":"India’s trade deficit swelled to almost $120bn in the year to March 31, from $95bn a year earlier. Import costs ballooned on the back of soaring fertiliser and gold prices. Exports to the US, India’s biggest market, were hit by Donald Trump’s trade war, while the US president’s military war on Iran has slashed exports to the United Arab Emirates, India’s second biggest market."}],[{"start":210.7,"text":"Analysts at Nomura warned this week that trade flows could drive the current account deficit to 2 per cent of GDP in the financial year from April 1, a doubling of the deficit in the previous year, if oil prices averaged $87 a barrel during the year. Benchmark Brent crude is trading just under $100 a barrel, down from a wartime peak above $126 but up from the prewar level of about $70 a barrel."}],[{"start":null,"text":""}],[{"start":238.39999999999998,"text":"The benchmark blue-chip stock index, the Nifty 50, is down almost 7 per cent this year, with the slump in the value of the rupee adding to the pain for foreign investors. Meanwhile, the dollar-based MSCI India index is lagging MSCI’s equivalent benchmark for the Asia Pacific region by more than 25 percentage points. "}],[{"start":258.84999999999997,"text":"“[If] you look at the dollar returns of the Nifty 50, they are at a four-year low,” said Rajat Agarwal, Asia equity strategist at Société Générale."}],[{"start":269.84999999999997,"text":"He said the rupee’s weakness — along with the huge gains of US Big Tech stocks — was deterring foreign investors from coming back to India in any meaningful way. "}],[{"start":279.34999999999997,"text":"“For now, all the money is going towards the AI trade, where India is not present,” he said."}],[{"start":null,"text":""}],[{"start":284.7,"text":"This year’s outflows have left foreign ownership of Indian stocks at a 14-year low of 16 per cent, according to markets intelligence company Prime Database. "}],[{"start":294.25,"text":"The central bank highlighted concerns over the rupee in its April monetary policy report, but pointed to outflows by foreign investors as the main cause of the currency’s weakness. “A primary driver has been the sustained portfolio outflows, reflecting a risk-off sentiment towards emerging markets amid heightened global uncertainty,” it said."}],[{"start":314.2,"text":"It updated its baseline assumption for the rupee to 94 to the dollar over the year to March 2027, from the 88 it had predicted in October. "}],[{"start":null,"text":""}],[{"start":324.8,"text":"Central bank governor Sanjay Malhotra argued in a speech last week that the current account deficit was “sustainable”. While recognising that “elevated energy prices will exert upward pressure” on the deficit, he said recently concluded trade agreements with New Zealand and the EU, among others, “should offset some of the impact”. "}],[{"start":344.05,"text":"Most economists expect the economy to grow in line with the central bank’s forecast of 6.9 per cent this year. India is less dependent on exports than its regional peers, and the government has subsidised fuel prices to protect consumption-driven growth from the energy shock. Prime Minister Narendra Modi is riding a wave of popularity, as shown by recent victories for his ruling Bharatiya Janata Party in state elections."}],[{"start":368.6,"text":"So far, the government’s willingness to shield consumers from the energy shock has meant little reduction in demand. Analysts say that, should New Delhi need to ease pressure on the rupee, it could curb demand by passing on import price rises to consumers."}],[{"start":383.35,"text":"“Somewhere, that import bill has to reduce, right? And that gives you the way out, in some sense,” said Rakshit at Kotak. "}],[{"start":399.1,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1778226913_5969.mp3"}