Mumbai With July 2022 being the best month for the domestic equity markets, expectations around the market direction in the near to medium term are upbeat. In an interview, Kaushal Shah, executive director and head-equity capital markets, Kotak Investment Banking, laid out the key factors shaping investor sentiment. Edit Experts:
Foreign Institutional Investors (FIIs) have been continuously selling Indian stocks for a long time. When do you see the tide turning?
FIIs have made a massive $33 billion in sales since October 2021, including $6.3 billion in June. However, the rate of FII outflows has moderated in the last four weeks and in fact, in the week of July 18, FIIs turned net buyers for $1.2 billion. FIIs need stability and certainty to take a direct approach. Over the past nine months, the markets have seen a steady influx of negative news, causing significant portfolio losses and high levels of volatility for investors.
While the bearish is a concern, it looks like we are nearing the end of the shock and the markets are now mainly focusing on fundamentals rather than technical factors. With this, we can see investor confidence slowly coming back. Near-term movement will likely be driven by follow-on trades. Given the adversity, IPOs are currently selective and limited to scaled and split stories. Additionally, when valuing companies, investors are building in a pricing cushion to manage uncertainties and volatility. The market will provide select windows for launch in late April and early May 2022, where the five big IPOs were done.
Is India better positioned than its emerging market (EM) counterparts?
India has outperformed the global indices and in the last one month the Indian Nifty saw a gain of 6.6%, while MSCI EM gave a negative return of 1.5%. This is possible given the strength of the domestic current. DIIs (domestic institutional investors) have infused a record $40 billion since October 2021 on the back of consistently strong SIP (systematic investment plan) inflows – June quarter inflows averaged $1.5 billion, up from FY22 average of $1.3 billion.
Additionally, retail and HNI (high net worth) investors have contributed significantly to domestic inflows.
India has shown resilience with a stable political landscape and strong economic and macro factors; India is expected to register the highest gross domestic product (GDP) growth globally for 2022.
There is some risk among foreign investors with respect to China. Do you expect India to benefit from this?
China is a huge market for investors and will always be under consideration. China will see a reduction in flows due to policy risks or other concerns such as current real estate tensions; However, investors will evaluate on a risk-adjusted basis—they will be willing to invest if they believe a market correction considers policy risk. However, FII inflows into India during that period were despite improvement from China and were driven more by domestic indicators and global factors.
The silver lining behind a possible slowdown in the West has been moderation in input costs across sectors. Do you think this will sustain domestic demand?
Preliminary indicators are pointing to a bearish trend in the west, but we will have to see if it really holds up. However, Indian corporates will certainly benefit from cooling commodity prices and, therefore, lower input costs. While there is a potential impact on demand due to recessionary pressures, this could be sector-specific and somewhat offset by a stronger domestic demand and consumption story.
The 75-basis point hike by the US Fed is along expected lines. Could there be any surprises from the Reserve Bank of India in the next policy meeting?
Regulators around the world are focusing on managing inflation. Markets are expecting RBI to hike rates by 35-50 basis points in the upcoming policy meeting, which is not surprising. India is in a much better position in terms of inflation. While India’s CPI (Consumer Price Index) is range bound for the past two years (7.0% versus the current level of 6.2% as of 30 June 2020), most developed economies have seen record-high inflation levels and emerging economies have seen growth at times is going In the same period the CPI
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