After heavy selling in the past two months, foreign investors have staged a strong comeback to Indian equities with a net investment of Rs 24,454 crore in the first week of December amid stabilising global conditions and expectations of potential US Federal Reserve rate cuts. This revival follows significant outflows in the preceding months, with foreign portfolio investors (FPIs) pulling out a net Rs 21,612 crore in November and a massive Rs 94,017 crore in October - the worst monthly outflow on record.
'2025 is the year to build a portfolio for the future. Focus this year should be on valuations and visible growth.'
In the near term, two key factors are the outcome of the monsoon season in respect to cropping yields; and the correction in the crude oil price.
Among the Sensex firms, Axis Bank, Power Grid, Maruti, State Bank of India, Tata Motors, ITC, Nestle and Mahindra & Mahindra were the major gainers. Bajaj Finance and Larsen & Toubro were the laggards.
Fresh investments through participatory notes (P-notes) are flowing into the cash market in huge quantum. The rush of investments is because foreign institutional investors (FIIs) have enough headroom to invest through P-notes.
As FIIs propel it beyond 20,000, caution is critical.
Oil and Natural Gas Corporation, Hindalco Industries, Tata Steel and Vedanta were down up to 70 per cent below their one-year highs.
Global liquidity expected to continue amid ECB stimulus
In 2012, partly due to stringent disclosures, P-note custody inched up from Rs 1.51 lakh crore (Rs 1.51 trillion) to Rs 1.77 lakh crore (Rs 1.77 trillion), an increase of 17 per cent.
The investment limit in long-term infrastructure bonds, however, has been kept unchanged at $25 billion.
From the valuation angle, the market is showing similar signs of being over-valued without being in a bubble territory yet.
In the event of a dramatic tightening of credit, some of the sources of capital like Foreign Institutional Investors, Foreign Direct Investment and External Commercial Borrowing, could dry up.
Strong equity flows from domestic institutions, not foreign inflows, will be the real driver of the expected bull rally
The rupee tumbled 3 per cent against the US dollar in 2024 as concerns over slower economic growth and a stronger greenback in global markets weighed, but it was among the least volatile currencies in the world and the headwinds may be less intense in the coming year.
With mutual funds, promoters turning net-buyers, foreign investors may have to bid up prices to raise holdings.
Equity benchmark Sensex declined nearly 390 points on Friday, pressured by heavy selling in IT, tech and energy stocks despite a positive trend in the global markets. Besides, rising crude oil prices and relentless foreign capital outflows further weighed on sentiment, traders said. The 30-share BSE Sensex opened strong but came under severe selling pressure to close 389.01 points or 0.62 per cent lower at 62,181.67.
Except for liquidity, which could act in favour or against the market in the short term, most market participants are bullish.
'Indian equity valuations, although not very expensive, are not cheap either.'
Smaller stocks have emerged as Dalal Street's favourites in 2023 that has turned out to be a "great year" for equities, rewarding investors with big gains, driven by optimism over the country's macroeconomic fundamentals and heavy retail investors participation. Experts said equity markets are experiencing a prolonged bull run and it is during this time that the midcap and smallcap segments tend to outshine their larger counterparts. Till December 22 this year, the BSE smallcap gauge has jumped 13,074.96 points or 45.20 per cent while the midcap index has surged 10,568.18 points or 41.74 per cent.
Previous peak in 2010 crossed in first five-and-a-half months this year.
The party says 23% of foreign investments should be by FIIs.
US Fed rate rise raises risk of further drying up of FII flows.
There is a lot of optimism across all markets and a large part of it is justified, says Samir Arora of Helios Capital Management.
Putting Indian markets on fire, the foreign investors have pumped in over Rs 1-lakh crore of so-called 'hot money' into stocks during 2014 -- taking their cumulative net investments here beyond Rs 10 lakh crore.
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Inflows cross $10-billion mark for 3rd consecutive year.
Among the Sensex firms, Tech Mahindra, Wipro, Infosys, Tata Consultancy Services, HCL Technologies, Larsen & Toubro, ITC, Sun Pharma, NTPC and Titan were the major gainers. Nestle, Axis Bank, Tata Motors, ICICI Bank, HDFC Bank and Bharti Airtel were the laggards.
The broader markets ended mixed with mid-caps gaining 0.1 per cent and small-caps falling 0.1 per cent on the BSE.
In the Sensex pack, Bharti Airtel was the top performer, surging 4.61%. Other gainers included ICICI Bank, IndusInd Bank, L&T, Sun Pharma, RIL, HDFC duo, Tata Motors and M&M -- climbing up to 3.69%.
'We believe 2017 could see higher flows from foreign institutions as money comes back to growth markets like India.'
With outlook uncertain for a range of sectors, no one is quite sure of where to invest in stocks
Overall, the MF industry saw nearly Rs 5 trillion, or 18 per cent, of asset erosion in March, with the asset base shrinking to Rs 22.26 trillion from Rs 27.22 trillion at February-end.
'The risk is in not being invested and missing out on an upmove.'
Announcement of macroeconmic data such as industrial production and inflation, the US Federal Reserve's interest rate decision along with trends in global equities would dictate movement in the stock market this week, analysts said. Besides, foreign fund trading activity would also guide the trends in equities. "All eyes are now on the US Fed policy outcome for cues, which is scheduled on June 14. In the following sessions, the European Central Bank (ECB) and Bank of Japan (BoJ) will also announce their policy decisions.
FIIs have offloaded stocks worth Rs 13,110 crore
The sharp rally in the markets thus far in fiscal 2023-24 (FY24) has left analysts struggling to find investment-worthy themes. The S&P BSE Sensex has surged nearly 7 per cent thus far in FY24 and hit a fresh 52-week high of 63,601.71 levels on June 22, mostly led by foreign institutional (FII) flows. "The Indian market has seen a broad rally in the past few months but headline indices have seen more modest performance. "We are not very clear about the reasons for the rally and the divergent performance and struggle to find ideas in the consumption, investment and outsourcing sectors after the sharp run-up in several of our favored sectors and stocks in the past two months," wrote Sanjeev Prasad, co-head, Kotak Institutional Equities, in a recent co-authored note with Anindya Bhowmik and Sunita Baldawa.
FIIs hold as much as 27 per cent in the over $1.6 trillion Sensex market capitalisation as of the September quarter, which is at a historic high.
Indian markets rose 19 per cent in the first half of this financial year, the best performance by any market during this period, globally.
'Investors should continue to invest because you are looking at the long-term; in the next four to five years, we are bound to outperform (the rest of the world equity markets).'
It has so far managed to raise only Rs 1,700 crore (Rs 17 billion), by divesting a 5% stake in Steel Authority of India.
Among the Sensex firms, Tata Motors jumped over 3 per cent. Tech Mahindra, Infosys, HCL Technologies, Axis Bank, Mahindra & Mahindra, ICICI Bank, UltraTech Cement and Kotak Mahindra Bank were the other major gainers. NTPC, Asian Paints, Titan and Power Grid were among the laggards.
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