Exchange traded funds (ETFs) listed in several foreign financial centers like New York and London exiting India is emerging to be the main reason behind the market crash. However, the ETFs being denominated in the euro is the cascasding effect that is hurting the market, reports CNBC-TV18's Anuj Singhal.
Research shows that money has gone out of India through ETFs. Despite the money being miniscule, about USD 287 million, in a market where the domestic investors are not participating, the FII money was supporting the market.
Looking at the high pedigree midcap stocks from the part of the F&O list will explain the pressure seen in those names.
These are the midcaps which are the biggest share holdings of some of these ETFs. The biggest ones in particular are Wisdom Tree, J&K Bank, Federal Bank. Everyone is bullish on banks or atleast was bullish on banks, Adani Enterprises, HDIL, Karnataka Bank.
In the last three months, from December high to recent lows, when we have also seen a bit of an outflow especially from ETFs; Federal Bank is down 14 percent, J&K is down 16 percent, Syndicate Bank a high pedigree midcap bank is down 26 percent, JSW Steel that is the bluest of bluechip midcap stock down 32 percent. Adani Enterprises is down 34 percent, Karnataka Bank is down 34 percent and HDIL is down 62 percent.
At the end of the day, even these ETFs will find liquidity only among few Nifty stocks and after that, in select BSE 500 stocks. These are the stocks which they will go out and buy. Now because of these stocks falling, some of these ETFs being euro denominated, the currency domination factor also comes into play. That’s why this cascading impact comes and that has always been India’s problem. As there is no local hand which is buying, the Indian market is like a high beta stock in a basket.