Foreign institutional investors (FIIs), which have pulled out a little over Rs 14,000 crore from the cash segment of Indian equity markets so far in the current month, are still net buyers since July 2018.
FIIs which were mostly net sellers in 2018, turned tables in 2019 by pouring in more than Rs 40,000 crore in Indian markets largely on expectations of continuity of policy and a stable government at the center.
They have raised stake in nearly 130 companies consistently in the last 4 quarters, which could be seen as a sign of confidence. Out of 129 companies, in which FIIs raised stake listed on BSE, four more than doubled investors' wealth. These include names like Adani Power, Balrampur Chini, Dhampur Sugar, and P&G Health Ltd, data from AceEquity showed.
There are as many as 33 stocks which gave more than 10 percent return in the last one year, which include names like Muthoot Finance, ICICI Lombard, PNC Infratech, Varun Beverages, Atul Ltd, JustDial, Aarti Industries, etc. among others.
Foreign investors, who poured money into Indian equity markets in the first four months of 2019, have turned net sellers since then. They have pulled out more than Rs 2,000 crore in May, less than Rs 1,000 crore in June, and over Rs 14,000 crore so far in July.
The sentiments turned sour after Modi 2.0 government's presentation of the Union Budget, which was tabled earlier in July. The government's proposal of increasing tax surcharge for foreign entities, which are registered as non-corporates, weighed on sentiment.
The proposal dampened the sentiment as the move could well impact almost 40 percent of the FPIs, said a report quoting industry estimates. Finance Minister Nirmala Sitharaman ruled out any possibility of a rollback, which only extended the selling pressure on D-Street.
FIIs are selling into equity markets, but they are also selectively picking stocks consistently, which is a positive sign.
“There were no positive surprises in the budget, instead, the surcharge on FPIs was a mood dampener for FIIs. The selling by FIIs may continue until the uncertainty about a surcharge on FPIs persists, but it won't last for a long time if global liquidity continues to move into emerging markets,” Amit Gupta, CEO and Co-Founder TradingBells told Moneycontrol.
“The Indian equity market is witnessing net FIIs outflows due to domestic issues, but selective pockets still manage to attract some FII investment like quality NBFCs, PSU stocks, insurance companies, etc,” he said.
These pockets have still the potential to outperform and can act as strong buy ideas amid local uncertainty. On the other hand, the beaten-down auto and pharma sector may also surprise on the positive side, experts suggest.
Don’t ignore other parameters:
A list of stocks in which FIIs are raising stake can at best be considered as a filter before selecting stocks, because not every stock in which FIIs raised stake gave positive or double-digit returns.
Out of 129 stocks in which FIIs raised the stake, 79 stocks gave negative returns. And, out of 79, 65 stocks fell 10-80 percent in the last one year – which includes names like Eros International, IIFL, Vodafone Idea, Jain Irrigations, Oil India, PNB Housing Finance, etc. among others.
Investors should understand their risk appetite and how long can they hold the stocks. These two parameters could vary when compared to foreign investors. The focus should be on diversification and maintaining quality stocks in their respective portfolio. Quality, here, could be read as consistently showing earnings growth quarter-on-quarter.
Ajit Mishra Vice President, Research, Religare Broking Ltd told Moneycontrol that the focus of FIIs will now shift to core fundamentals like valuations, earnings, growth data, crude, and currency movement.
“Notably, the recent selling by FIIs could be largely attributed to lack of a big-bang announcement in the Budget, stretched valuations and cautiousness ahead of the earnings season. Further, the ongoing economic slowdown across sectors also weighed on sentiments,” he said.
Mishra further added that this trend could continue until there is a meaningful revival in earnings. Further, movement in crude prices and currency could also dictate the trend for FIIs.
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