MUMBAI: Even as Indian equities have seen net inflows of around $700 million (Rs 5,848 crore) from foreign funds in the past few sessions, experts believe this might not turn out to be a trend reversal, given concerns over valuations and underperformance of large-caps. Last week, when election results were announced, they were sitting on record short position on many days.
Going forward, some nervousness is likely to remain ahead of the Budget in July, considering the unexpected election verdict, as foreign investors may need confirmation of policy continuity to make any big fresh investments.
In the last five sessions, foreign portfolio investors (FPIs) have bought shares worth $711 million after having sold $3.8 billion worth of shares in April and May. The selloff in the past two months was attributed to two main reasons — caution due to elections and attractive China valuations.
Vinit Bolinjkar, head of research at Ventura Securities, said this might just be token buying in some stocks and not fresh money coming into the market.
Sharing a similar view, Shridatta Bhandwaldar, head of equities and fund manager at Canara Robeco AMC, said one needs more supporting evidence to consider this a trend reversal. “FIIs are largely present in large-caps in India and that segment has underperformed. So, they may not want to buy incrementally in large-caps, and in broader market, there are valuation concerns,” Bhandwaldar said.
As per provisional data, FPIs sold shares worth $363 million on Thursday after being buyers in the previous four sessions.
“The unexpected market reaction to an unexpected result in the 2024 national elections highlights the unusual nature of the Indian market. Non-institutional investors remain extremely confident about making high returns from the market, irrespective of prices and valuations. Institutional investors can choose to fight, flee or join,” said Kotak Institutional Equities in a note earlier, highlighting the swift recovery in the markets after the 6% decline on June 4.
Deepak Jasani, head of retail research at HDFC Securities, said, “Whoever was sitting on the fence and waiting for elections to be over has come into India. Now, the relative attractiveness of India compared to other emerging markets and interest rate outlook globally will be key factors in determining whether FIIs continue to remain buyers.”
Interestingly, the selling on Thursday comes after hawkish tone of the US Federal Reserve at its latest policy meeting. Apart from this, investors will also keep a watch of elections in the US later this year.
Market participants highlighted other issues, including the prospects of weakening dollar, which may prove to be hindrance for any major inflows into India going ahead.
“Two things happened on Thursday. Russia has banned trading in dollar and euro, and Saudi Arabia has said they are not renewing the petro-dollar contract that was signed 50 years ago. This will weaken the dollar, and consequently there could be ramifications for the US economy and the money might not flow in as we expect,” Bolinjkar said.
Source: The Financial Express