Foreign liquidity in Indian stocks could be at risk as the US Federal Reserve prepares to cut its bond purchases faster than expected. Foreign Institutional Investors (FIIs) have steadily abandoned Indian stocks in recent months over concerns over high valuations and the spread of the Omicron variant of covid, which is feared to disrupt economic activity.
India has lost $ 3.4 billion in FII money in equities since October, an indication that markets may not see robust cash flow. The looming Omicron threat also threatens a rally in equities amid a sustained recovery in India’s national economy. In October, the FII sold Indian stocks for $ 2.27 billion and sold $ 756 million and $ 368 million in November and December, respectively.
India saw net FII outflows, due to excessive valuation in some pockets after the market surged this year, according to Sanjeev Hota, head of research at Sharekhan at BNP Paribas. This makes the Indian market less attractive than other emerging markets, and the Chinese market surplus also makes the entire emerging market basket less attractive to FIIs, Hota said.
In addition, concerns about the risk of inflation and the Fed’s faster slowdown could lead to another massive sale of IFIs as India is ready for a multi-year structural growth cycle, making it a gamble. attractive investment for the long term, despite some short term exits from the IFIs, investments will eventually flow into the Indian market given its attractiveness for investment, ”he said.
Hota added that despite the short-term volatility and reasonable market correction, over the past seven-eight years, the Indian market has enjoyed strong support from domestic investors in the absence of FII flows. . “So even if there are short- or medium-term FII exits for multiple tactical reasons, the Indian market, given its long-term growth potential and pro-growth government policy, will eventually find the support of domestic and foreign investors, ”Hota says.
In 2021 so far, the IFIs have been net buyers of Indian stocks worth $ 5.17 billion. National Institutional Investors (IDIs) have been net buyers of stocks worth ??71,883.90 crores. In November, they were net buyers of ??30,522.02 crore and ??4,839.67 crore in December.
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