Mumbai: The sharp fall in crude prices, now at an 11-year low, is leading to withdrawal symptoms among sovereign wealth funds in the Arab world, which may hasten foreign capital outflows from the domestic market, Swiss brokerage Credit Suisse said today. “At these oil prices, the West Asian economies are struggling to manage their budgets. Every 2-3 months, they put in redemption requests to some of the largest funds and then they are forced to sell. That selling pressure is hitting us,” MD Neelkanth Mishra told reporters here.
The redemptions may not be immediate after every fall in crude prices and each sovereign wealth fund will take a call based on the budgetary pressures a particular country faces, he further said.
According to Mishra, such an eventuality will be bad for the domestic market, which has seen record pullouts by foreign investors in the past three months. Stating that the outflows over the last three quarters have been worse than those in the wake of the 2008 global financial crisis, Mishra said, “My fear is the outflows will continue if not accelerate from the current level.”
Foreign funds have withdrawn over Rs 30,000 crore from the domestic market this fiscal. He felt that large-cap stocks will bear the brunt as foreign investors tend to pump much of their investment into such companies.
It can be noted that global crude oil prices have been on a downward trajectory as the world adopts newer alternatives, including shale gas and other renewables, and become more conscious of carbon emissions.
Oil is now trading at around USD 35 a barrel now, which brings cheer to oil net importers like India, which meets over 80 per cent of its oil needs from imports.
