Rs 4 lakh crore gone in 15 months! 3 factors why FIIs are reluctant to buy Indian stocks

“FPIs have sold Rs 4.1 lakh crore over the last 15 months in the CM (cash market) segment in primary markets. This time, the pace and amount is much higher than what it was in 2008, which is hurting the Indian market. Since the real tightening cycle is coming back after decades of a low interest rate era, global investors seem to be considering a new asset allocation strategy,” Jisang Yoo, CEO, Mirae Asset Capital Markets, told ETMarkets.

On the other hand, domestic investors have bought stocks worth about Rs 3.3 lakh crore in the last 15 months and have absorbed more than 80 per cent of foreigners’ selling so far. The average monthly SIP flow is Rs 12,100 crore this quarter. 5 years ago, this average monthly flow was only Rs 3,700 crore.

He cites three major reasons that are making FPIs reluctant to come back to emerging markets, including in India:

1. Crude oil rates have corrected since last week but one of the reasons for this is looming worries of an economic downturn, given that supply side issues continue to exist.
2. Because of the US rate hike, EM currencies may lose attraction. The US Fed has hiked interest rates by 75 basis points and Powell has confirmed that there would be a series of such giant steps this year. Many investors are concerned about the depreciation in Indian rupee, especially since the RBI hiking cycle is slightly lagging compared to other countries’ rate hiking cycles.
3. Foreign investors are concerned whether the Indian economy would be able to overcome inflationary pressures. They are looking for assurance on continuance of higher growth rate in coming years. The current account deficit is also widening.

The veteran market expert, who tracks EMs closely, said for foreign investors to return to India, there should be clear signs related to easing of inflationary pressure and Indian companies need to post strong earnings.

If there is a global recession, India too will see a dip in earnings estimates.

With the headline index Nifty being 817 points away from officially entering the bear zone, Yoo said Dalal Street has been a relative outperformer as compared to other EM markets. “One of the main reasons is domestic investors. Retail money through mutual fund SIP has given good support to major indices,” he said.

Currently, Nifty is at a 1-year forward PE multiple of 17.4x from the peak of ~27-28x. “Among all other emerging markets, India is still at a premium. However, I don’t want to say India is expensive since India valuation has always been higher compared to other markets in the last two decades. The premium became justified because of earning growth.”

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)