Oil linked SWFs to hit marts

While a rate hike by the US Federal Reserve could lead to outflow of funds from emerging market equities, another worrying factor that is now emerging on the global front is the persistent fall in crude oil prices, which if continues for an extended period of time could prompt some of the sovereign wealth funds (SWF) to cut their equity market investments. Among the various categories of FPI, sovereign wealth funds are the largest investors in the Indian market.

According to data available with the National Securities Depository Ltd, sovereign wealth funds hold equity assets worth `1.73 lakh crore as at the end of October 2015. “With the sharp fall in the global crude oil prices, most of the oil producing countries especially in the Middle-East would find it difficult to meet their budget deficits. If the oil prices continue to remain weak and fall further from the current levels, these sovereign wealth funds will not have any other option than to sell their equity market investments. But this will happen over a period of time,” said Gopal Agrawal, CIO, Mirae Asset Global.

The prices of Brent crude tumbled four per cent on Monday to below $36.40 per barrel for the first time since December 2008. “It all depends on what sort of urgency they have. Crude oil at $35 per barrel was largely expected by the market and at this level, a panic selling by SWF is unlikely. If weakness persists and prices fall, there could be some kind of unwinding,” said Ambareesh Baliga, research analyst.