Foreign investors have sold $3.2 billion in Indian debt holdings since June, extending a selling streak which began in the last week of May after US Federal Reserve chairman Ben Bernanke hinted at a pull-back in the Fed’s quantitative easing programme. FIIs exiting the debt market also pushed the rupee to a record low this week, which in turn eroded dollar returns offered by the Indian equity markets. While the government has blamed global factors for the sell-off in India, legendary investor
Jim Rogers suggests that India has some serious problems which have played a part in the outflow of foreign funds. In a conversation with Ira Dugal, Rogers, who has never been very bullish on India, says India is worse off than many other emerging economies. However, he says that once central banks start to reverse their liquidity policies, all markets and asset classes will suffer.
In recent comments, Rogers, who co-founded the Quantum Fund with George Soros in 1973, expressed concerns over the bubble in the global bond markets, which he fears is going to pop if the Fed starts to tighten liquidity.
Rogers’ preferred asset class remains commodities, and chooses to stay invested in gold and silver. Rogers, who has considerable investments in gold, has not exited his holdings despite the recent correction. But he expects gold to fall further and is waiting for the right buying opportunity.
What to you mind is
the reason behind the heavy FII selling we have seen in Indian debt, which is now spreading to equities?
India has got some serious problems. There is a balance of payments problem, a high budget deficit, high inflation and on top of that a weakening currency. It doesn't surprise me that investors will sell out of India, particularly Indian debt. As you are aware, I am not a fan of India from an investment standpoint.
But is this India-specific or is it more global where investors are exiting emerging market debt broadly?
Of course it is. People are worried that the Fed will withdraw QE and that will mean tighter liquidity and higher cost of money in countries like the US. So naturally investors will sell debt in emerging markets. But India is in worse shape that most of the other economies so investors will sell there first.
Are you expecting the Fed to pull back on quantitative easing this year?
I don't know when they will end it.