REITs ease sales, net buyers in July so far

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The seven-month sell-off by Foreign Portfolio Investors (REITs) in Indian markets appears to be easing. After withdrawing more than Rs 2.55 lakh crore since December 2021, REITs have become net buyers in India in July so far, bringing some relief to bearish stock markets.

REITs have invested Rs 870 crore in the domestic markets so far this month, having withdrawn Rs 51,422 crore in June and Rs 36,518 crore in May this year.

According to data from NSDL, in July, the REIT’s net equity investment was Rs 1,099 crore and Rs 792 crore in debt, but they withdrew Rs 926 crore in debt-VRR (Voluntary Retention Road).

Analysts said there was a clear shift in the REIT’s market action. “The relentless sell-off of REITs that began from October 2021 appears to be over. They slowed their selling significantly in July and even became buyers for 5 days in July, especially in the last few days when they continuously bought,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services. The dollar index, which had moved above 109, was down to 106.55 on Friday. This is one of the factors that contributed to the REIT’s change in strategy, he added.

The REIT’s sell-off is attributed to the tightening of monetary policy by the US Federal Reserve, which embarked on a rate-hike spree to control inflation. Other central banks, including in the UK and the eurozone, are following suit. One analyst said: “Relatively high valuations in India, rising bond yields in the US, appreciation of the dollar and concerns over the possibility of a US recession triggered by aggressive tightening are factors behind the REIT’s withdrawal.”

When the global economy took a hit, central banks around the world cut interest rates and announced liberal monetary policies. While this has helped economies recover and led to higher consumption, the excess liquidity in the financial system has raised a big concern: inflation.

With inflation reaching new levels in major economies like the United States and the Eurozone, central banks began to tighten monetary policies and raise interest rates. In India, inflation hit an eight-year high of 7.79% in April, prompting the Reserve Bank of India (RBI) to raise the repo rate by 90 basis points to 4.90%. Retail price inflation was 7.01% in June, well above the RBI’s upper tolerance limit of 6%. In fact, inflation has reached multi-decade highs in several economies.

REIT holdings (by value) in NSE-listed companies stood at Rs 51.99 lakh crore as of March 31, 2022, down 3.36% from Rs 53.80 lakh crore as of December 31 2021, due to sustained selling- since October 2021. REITs hold large stakes in private banks, technology companies and large caps like Reliance Industries. The United States accounts for a large share of REIT investments at Rs 17.57 lakh crore in May 2022, followed by Mauritius (Rs 5.24 lakh crore), Singapore (Rs 4.25 lakh crore) and Luxembourg (Rs 3 .58 lakh crore), according to available data from NSDL.

Sebi’s recent decision to allow REITs in the commodity derivatives market is expected to boost inflows. “As India grows and aspires to become a $5 trillion economy, opening the doors to foreign investors and allowing REITs to participate in exchange-traded commodity derivatives will not only help integrate Indian commodity markets at par with global markets, but will also make it easier to manage price discrepancies and improve liquidity in the markets,” said Manoj Purohit, Partner and Head of Financial Services Tax, BDO India.

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He said the Sebi struck a chord at a time when REITs were steadily pulling money out due to numerous global, economic, political and market-related factors. “This announcement will act as a positive respite amid the global turmoil capital markets are facing.”

With the rupee remaining under pressure, India’s foreign exchange reserves fell another $7.54 billion to $572.71 billion in the week ended July 15 amid an appreciating dollar and capital outflows from India triggered by rising inflation and rate hikes by the United States.

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