FPIs may return to Indian equities soon

'The more foreign investors become convinced of the durability of the economic cycle, the more likely foreign flows into Indian equities resume.'

Foreign investors who have dumped Indian equities since October are likely to reverse their stance soon, given the resilience of the Indian economy against multiple headwinds, believes Christopher Wood, global head of equity strategy at Jefferies.

'The strong rebound in non-oil and gas imports reflects the economic recovery following the Delta wave. Even if oil remains at around $100 a barrel, India still looks on course for growth of 7 per cent next fiscal year, helped by the renewed upturn in the residential property cycle. The more foreign investors become convinced of the durability of the economic cycle, in spite of higher interest rates, the more likely foreign flows into Indian equities resume,' Wood wrote in his recent note to investors, GREED & fear.

Foreign portfolio investors (FPIs) exited India in droves and have sold stocks since October amid fears of an earlier and faster-than-expected rate hike by the US Federal Reserve. The Russian invasion of Ukraine has added to their concerns.

A recent analysis by ICICI Securities shows the trailing 12-month (TTM) selling tally of FPIs of $36 billion is higher than $28 billion recorded during the 2008 global financial crisis.

The impact of FPI selling during the 2008 crisis was worse, causing the benchmark Sensex to crash nearly 70 per cent from highs of around 20,800 in January 2008 to 8,500 in October 2008, the ICICI Securities note said.

'The Indian stock market faces troubling headwinds and would certainly have corrected much more year-to-date were it not for domestic fund flows helping to absorb record net foreign selling. The stresses are already showing in terms of a rupee, which hit an all-time low on March 7,' Wood wrote.

'Non-oil and non-gold imports were already growing at a two-year annualised rate of 20 per cent in February before the Ukraine-triggered further surge in the oil price. Assuming an average oil price of $90 per barrel in FY23, the current account deficit could hit a 10-year high of 2.8 per cent of GDP,' Wood added.

Money flow

DIIs, according to a note by Motilal Oswal Financial Services (MOFSL), recorded their highest inflow in February into Indian equities since March 2020 at $5.6 billion at a time when FIIs sold for the fifth consecutive month with their withdrawals amounting to $5 billion.

'Investors continue to invest in mutual funds, with inflows and contributions in systematic investment plans (SIPs) remaining stable at [Rs 11,440 crore/Rs 114.40 billion] in February 2022,' the MOFSL note said.

February, according to the report, also saw notable changes in how DIIs approached the markets. On a month-on-month (MoM) basis, they increased exposure to metals, technology, healthcare, non-banking financial companies, oil and gas, consumer, retail, and consumer durables sectors, while the exposure to automobiles, PSU banks, cement, capital goods, insurance, private banks, and chemicals moderated.

Four of the top five stocks that saw a maximum decline in value in February were from the banking space.

ICICI Bank, State Bank of India, Tata Consultancy Services, HDFC Bank, Axis Bank, Larsen & Toubro, NTPC, Bharti Airtel, Bharat Petroleum Corporation Limited and SBI Life Insurance decreased the most, the MOFSL note said.

On the other hand, stocks that gained the most were Infosys, Hindalco Industries, Reliance Industries, Tata Steel, Avenue Supermarts, Cholamandalam Investment & Finance, HCL Technologies, Cipla, Divis Labs, and Titan.

Feature presentation: Mahipal Soni/Rediff.com