Slow growth forces foreign investors click sell button
Concerned over the subdued corporate earnings growth and a slowdown in the broader economy, foreign portfolio investors (FPI) have offloaded equities worth `14,150 from the domestic equity markets in August till date, their biggest monthly sales since January 2017.
According to market participants, the Indian equity markets witnessed a steep rally following a gush of both domestic as well as offshore liquidity because of which corporate fundamentals failed to keep pace with equity valuations.
With expectation about a fast-paced corporate earnings growth remaining low, FPIs took some profit off the table capitalising on the rise in share prices.
After remaining net sellers of equities worth `1,177 crore in January this year, overseas investors pumped in a record `59,691 crore during the six months ended July 2017 pushing equity markets to their alltime high.
“It makes sense to book profits especially when they were sitting on good amount of profits and when there is no major expectation about a turnaround in both economic and corporate earnings growth for atleast another few quarters. The significant amount of liquidity that flowed into domestic equities had created a huge gap between fundamentals and valuations,” noted Ambareesh Baliga, senior research analyst.
While the 30-share Sensex hit a record high of 32,686.48 on August 2, the broader 50-share Nifty hit its all time high of 10,136.30 on the same day.
Since then, both have slumped 3.33 per cent and 2.75 per cent respectively with experts warning about further corrections in the coming days.
“FPIs exiting at these levels itself indicates that they are not expecting much upside from these levels. One of the major concerns is that we will shortly enter election mode and the government is likely to turn little populist in its policies.
“Secondly, the activities at the ground level are also not providing enough comfort for remaining bullish as unemployment is growing and SMEs are still facing huge issues due to the impact of demonetisation and the implementation of GST,” Mr Baliga added.