Domestic investors drive rally as FIIs stay away
Foreign investors have largely stayed on the sidelines so far in July, ahead of June quarter corporate report cards, and as businesses are adapting to the landmark tax reform -- the Goods and Services Tax Act (GST) continued buying by domestic investors, though helped drive market to fresh highs.
However, dealers said the market may not hold to the current gains in light of expectations of subdued June quarter earnings.
“FIIs are already overweight on India. Fundamentally, GST implementation is positive on the long-term. However, the earnings growth recovery may still be elusive for now,” said Gautam Chhaochharia, head of research at UBS Securities India Pvt. Ltd, adding that strong flows by domestic investors are supporting the market.
“A consolidation is not ruled out at this point though, given the strong rally so far,
BSE’s benchmark 30-share Sensex and National Stock Exchange’s 50-share Nifty have added 2.86% and 3.10 % so far in June respectively.
They logged record closing highs of 31,804.82 points and 9,816.10 points respectively.
For the year to date, Sensex is up 19.45% , and is the best faring stock market in Asia followed by Hong Kong’s Hang Seng index and Korea’s Kospi Index with gains of 18.4% and 18.02% respectively.
For the month to Tuesday, foreign institutional investors (FIIs) have withdrawn a net of $244.02 million cash from Indian shares, while domestic institutional investors or (DIIs) have managed to pump in a net of Rs. 3,592 crore in the asset class.
On Wednesday though, FIIs briefly turned net buyers of Indian shares to the tune of ₹361.25 crore, while DIIs booked profits and sold a net of ₹330.58 crore of the asset class.
According to EPFR Global, India equity funds experienced net redemptions for the first time since late February in the first week of July.
“In the case of India, some investors are taking a step back until they see how domestic businesses and consumers respond to the new national sales tax..,” EPFT Global said in a release on 7 July.
Flows to EPFR Global-tracked Emerging Markets Equity Funds during the week ending July 5 slipped to their lowest level since their current inflow streak began in mid-March, the fund flow tracker said.
According to EPFR Global, an extended holiday weekend in the US, uncertainty about the pace of monetary tightening in the US and the timing of monetary policy in the eurozone, North Korea’s latest missile test and political events in both South Africa and Brazil all contributed to the loss of flow momentum.
“Global flows at large are weak towards emerging markets, and India is no exception, Thankfully , the domestic investors are actively investing and that is supporting the market,” said Vikas Khemani, CEO of Edelweiss Securities Ltd.
That said, markets may be in for a consolidation phase, after the recent rally,” said Khemani, adding that earnings growth may be flat for now, and the adjustment to GST may also impact.
The June quarter corporate report cards are set to show disappointment in earnings growth due to uncertainty surrounding the implementation GST-- the biggest tax reform since independence. Apart from sectorspecific issues, export-focused companies are likely to face the brunt of a rising rupee as well.
“Market started positively, but consolidated near its peak as investors took a wait and watch approach ahead of CPI and IIP data today. Quarterly results and their impact on the current high valuation will be watched,” said Vinod Nair, research head, Geojit Financial Services.