Analysts, however, say such profit booking is normal. Even if the pace of foreign flows slow down in the initial part of Samvat 2078, India, despite valuation concerns, will continue to enjoy a major proportion of foreign inflows to emerging markets (EMs), they say.
Data showed foreign investors have pulled out Rs 5,476 crore from equities in November, in addition to Rs 13,550 crore worth of outflows in October, a majority of which happened on account of outflows in the last 7-8 sessions. That’s just profit taking after a strong recent rally, said domestic brokerages.
Deepak Jasani of HDFC Securities said when the whole world was now expecting a withdrawal of monetary stimulus and rise in interest rates across the globe, the lure of equity could fall. FPI flows might diminish in the short term. “However, India can attract a large portion of the fresh flows directed at emerging markets,” he said.
Even Morgan Stanley, which tactically downgraded India to equal weight, said it expected a structural multi-year earnings recovery. But at 24 times forward PE multiple, it has predicted some consolidation ahead of Fed tapering, an RBI rate hike in February and higher energy costs.
Roop Bhootra, CEO, Investment Services, Anand Rathi Shares and Stock Brokers, said: “It is difficult to say at the moment the FPI hit. But looking at the Fed comments on taper and inflation, this could be a risk factor in the near term, as inflation also seems to be sticky. Having said that, if the Fed takes any action on taper and rates, India should be the least impacted in comparison to others as we have strong GDP growth to support the economy.”
FPIs have bought Rs 45,247 crore worth of equities in 2021. Out of Rs 1,70,262 crore investments they made in domestic stocks in 2020, over Rs 1,22,000 crore worth of inflows had come in the last two months. Between November 2020 and November 2021, FPI inflows stood roughly Rs 1.67 lakh crore.
“This samvat has seen strong FPI inflows and we believe the trend should sustain if the economic growth picks up and India continues to see listing of new-age companies, which would expand the depth and breadth of the market. However, intermediate volatility in flows, driven by global interest rate movements and valuations, can’t be ruled out,” he said.
Earnings visibility and improving macroeconomic situation are seen as some of the factors that might keep foreign flows stable.
Vinit Bolinjkar, Head of Research at Ventura Securities, said India was the only major growth market, given that China and the US had some serious challenges to their economies.
“India has the right growth levers in place and, hence, FPIs should largely remain bullish on our markets,” Yesha Shah, Head of Equity Research, Samco Securities. “Although, the strength of the FPI inflows could be comparatively subdued due to higher probabilities of profit booking and pullbacks arising from plush valuations.”
That said, if the bond yields in the US rises, it would hamper the FPI inflow as the bond market there would become a lucrative segment, said Gaurav Garg, Head of Research at CapitaVia Global Research.
“We expect FPI flows may slow down in the next Samvat, given the imminent tapering by the US Fed,” said Jyoti Roy, DVP-Equity Strategist at Angel One. “However, we do not expect outflows as the tapering is likely to be gradual and rate hikes will only happen in the second half of calendar 2022 after the tapering.”
Binod Modi, Head Strategy at Reliance Securities, said India continued to offer better earnings visibility than other markets because of tailwinds. “We are at the beginning of a revival in the capex cycle, which offers strong visibility. Therefore, we believe FPIs flow should continue to remain positive about India,” he added.