Foreign Portfolio Investors (FPIs) may have caused turbulence in Indian equity markets with their substantial $12 billion in gross sell-offs in October, but experts caution against panic or making doomsday predictions.
This is because value of $12 billion sold is just a minuscule proportion of the $800 billion stock of Indian equities that FPIs currently hold in Indian equity markets, they said.
“On aggressive FPI selling, for me it is less of worry. You have to look at it from percentage of FPI holding and percentage of the overall market cap. When FPI holding is $800 billion, a $10 billion net selling is just more than 1 per cent. It is about 0.1 or 0.2 per cent of overall market cap of India. It is not huge”, Ravi Dharamshi, Founder, Managing Director and CIO, ValueQuest Investment Advisors told businessline here.
He was in the capital to address the 8th Value Investing Pioneers Summit, organised by CFA Society India, an Indian Association of Investment Professionals.
Dharamshi noted that the 8 percentage point correction in Nifty50 benchmark index was pretty much along the expected lines as valuations of Indian shares were quite stretched.
“This is pretty much along the line expected correction because of the valuation. We had run up four years in a row without significant correction. Lot of people started believing that Indian markets will not see meaningful correction. Corrections are a feature of the market, you cannot avoid them. If you have come expecting there will be no correction, you are in for a rude shock”, he added.
Dharamshi highlighted that between October 2021 to March 2023, when Russia-Ukraine war broke out, FPIs had sold about $40 billion.
“This (latest selling of $12 billion) looks big as this correction happened in just twenty days period this This is more a valuation driven correction than any kind of economic fear”, he said.
Sunil Singhania, Founder, Abakkus Asset Management LLP said that the outflow of $10-12 billion is a small proportion of $800 billion. “To say that FPIs will withdraw entire $800 billion is far fetched, even if they do where will they invest. I don’t think any other country offers stability, demand and demographics like India does”, he said.
Singhania expressed confidence that FPI inflows will happen from this quarter if corporate results improved.
“Results this second quarter has not been great. We do expect the results in second half this fiscal will be very very good.
No amount of flows can sustain the market if inherent fundamentals of companies are not good.
What we have to see is whether the next two quarters earnings actually bounce back. If that happens, flows will be good and markets will also be good. If that doesn’t happen, even if flows being good the markets might not be buoyant”, he said.
Singhania noted Foreign investors will increase allocations to India. “No doubt…We have no doubt about it. The kind of enquiries we are seeing from global investors who want to invest in India through us is at a peak”, he added.
V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said that the trend of sustained FPI selling which started in early October continues and is showing no signs of reversal any time soon.
FPIs have been sellers on all days in October till 25th in the cash market.
“FPIs are likely to continue their selling in the near-term since the market sentiment has turned weak due to the escalation of tensions in the Middle East and the uncertainty regarding the outcome of the US presidential elections”, he added.