The domestic markets Sensex and Nifty after correcting ~5% in the last few days, rose around ~0.8% yesterday. The prominent reason behind this correction is the net outflow of Foreign Institutional Investors.
As per NSE data, foreign investors sold equities worth Rs. 13,720.53 crores against the purchase of Rs. 9,060.88 crores across NSE and BSE. This means the net FPI/FII investment was a negative Rs. 4661.51crores. The values are based on the USD-INR conversion rate of Rs. 74.50.
This is proof that foreign investors are taking the money out. However, we don’t think it’s a matter of concern. We need to go back in time a bit to understand this.
In 2019, FII inflows stood at $14.2bn. 2020 was the second year in a row when the foreign money inflow into Indian equities was the highest among emerging markets. The Indian equities attracted over $23bn from foreign institutional investors last year.
The large influx of investments helped both Sensex and Nifty grow ~80% from the lows of 23rd March 2020. The broader markets also took part in the run and beat the benchmark indices. Nifty mid-cap and small-cap grew over 100% last year.
This means, FIIs made a lot of money through Indian equities. And now they are booking profits and taking some money off the table.
As Indian markets seem overvalued, they may have moved to cheaper markets like China for the short-term.
The past few months were rough for the Chinese market. But as things have started to cool off in the country after a series of government clampdowns and Evergrande crisis, the Chinese markets have become cheaper.
We may now see a similar rally in other markets in the short-term.
Does this mean the Indian markets have lost their charm?
No.
It’s the role valuation is playing at this moment and the fact that foreign investors have made a lot of money from Indian markets.
Andrew Holland, CEO, Avendus Capital Alternate Strategies believes the FIIs will come back to India.
The government has announced a series of reforms in the past few months such as the National Monetization Pipeline, Retail Direct Scheme, disinvestment plans to name a few.
We still have to witness the benefits of the government spending – whether it is on infrastructure, roads etc.
Moreover, several international and domestic organizations have upgraded their GDP growth estimates for India. As we saw in our earlier article, Goldman Sachs revised its real GDP growth for India from 8% to 9.1% in 2022.
Moody’s expects India’s GDP to grow to 9.3% in FY22. These revised estimates will bode well for earnings going forward.
India is one of the fastest growing economies in the world in terms of GDP growth, and corporate earnings will follow suit. It will entice the FIIs to our stock markets again.
In our view, the markets are going through a consolidation phase. One must look at the current situation as a pause instead of a complete sellout by foreign investors.
The stock markets reward those who invest in fundamentally strong companies and remain patient. It’s not a game of roulette, where you bet and earn. Short term correction and volatility are part and parcel of equity investments.
During 2003-07 bull-run, Sensex grew from 3000 level to 20,000 level. But we had times when we witnessed 20% correction in the market. So you must not fear the recent correction of ~5% in the markets.
Invest wisely with the guidance of a SEBI registered Investment advisor like us.
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Read more: How Long-term investing helps create life-changing wealth – TOI.