In the last 17 trading days since Budget was presented on July 23, Sensex is weaker by around 1,400 points or 1.7% as FIIs have been incessantly pressing the sell button almost every day.
Is it just about the capital gains tax hike issue? No, say experts.
βFIIs are concerned only about the elevated valuations in India, nothing else. The enthusiasm of retail investors and the sustained flow of money into domestic institutions are keeping the valuations elevated, particularly in the mid and smallcap segments. The demand for stocks far exceeds the supply, keeping the valuations high. This demand-supply mismatch is likely to continue for sometime,β says V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
Besides valuation, FIIs have also been bearish due to global factors such as recession fears, the yen carry trade, and high interest rates.”By November, we could see a reversal in FII behavior, as key developments provide more stability. The potential reduction of interest rates in the US, with expected cuts of about 25 basis points each, should alleviate some of the financial pressures that have kept FIIs cautious. Additionally, the upcoming US elections in November could bring greater predictability to global markets, increasing FII confidence,” Hemant Shah, Fund Manager at Seven Islands PMS, said.The impact of the FII sell-off would have been much wider had it not been for the trust shown by retail and other domestic investors who have absorbed almost all of the selling.”Right now, the market is not worried about the outflow from the Indian equity market and up to a certain extent, we do not want two big parties in a buying mode. One needs to sell and the other one needs to buy. If two big parties are in a buying mode, our market will go into exuberance, which we do not want at the current juncture,” explains Neeraj Chadawar of Axis Securities.
Earnings should be the biggest driver for FIIs to start re-looking at India once again.
βIf we look at the global landscape, India continues to outshine with expected real GDP growth of ~7.8% vs ~4.7%/~3%/ for China/US in FY25/CY24. Few high frequency indicators on which India continues to shine include its manufacturing PMI, which has been in the expansionary zone since Julyβ21 (58.1 in July 2024 vs 57.7 in July 2021), GST collection of Rs 1.6 trillion and PMI manufacturing index of 63.5 in July 2024, which is the highest since June 2010,β Bhargav Buddhadev, Fund Manager, Ambit Asset Management, points out.
However, if the FII exodus continues unabated, largecaps could be under pressure as most of the retail investorβs action is in the broader market.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
Source link
