FIIs sell off more than $1 billion in local equities in first 8 sessions of 2023

Foreign institutional investors (FIIs) have sold over $1 billion in local equities in the first eight sessions of the 2023 amid weak earnings by Tata Consultancy Services (TCS) and hawkish comments from two US Federal Reserve officials ahead of the key US and India inflation print.

FIIs sold a provisional Rs 3,208.15 crore of shares on January 11, according to data from the NSE website. They sold $817.58 million in equities from January 2 till January 10, data from the Sebi website showed. Foreign investors remained net sellers in 2022, selling $17.21 billion in Indian equities.

FIIs continued their selling stance since the start of 2023 after weak earnings reported by Tata Consultancy Services Ltd for the December quarter hinted at near-term headwinds and growth slowdown for the IT sector in the coming months.

Also, two key Fed officials ― Atlanta Fed President Raphael Bostic, and San Francisco Fed President Mary Daly ― said that the US central bank should raise interest rates above 5 percent. Both officials feel that it is too early to declare victory over inflation.

Consumer price inflation (CPI) in the US and India will be out on January 12. According to a Bloomberg poll, US CPI will be at 6.5 percent for December, down from 7.1 percent in November. For India, CPI is expected to be at 5.9 percent in December, marginally up from 5.88 percent a month ago.

Analysts said that investors will now track and try to predict the rate hike impact by the US Federal Reserve which they are increasing since 2022, on the economic growth. On the geopolitical front, the continuing Ukraine-Russia war may further impact the commodity prices only if it escalates to a higher level. A resolution of the conflict, though, could be a sentiment booster, according to analysts.

"A bigger impact on commodities could be driven by the state of the Chinese economy which, amid a slowdown, faces the additional challenge of a sharp spurt in Covid-19-related cases. The embattled European economy could slide into a deeper recession if the weight of “oversized” fuel costs ― gas prices today are trading at an equivalent of 2-2.25x current crude oil prices ― do not drop sharply in the coming months," said IDFC Mutual Fund in its recent note to investors.

On the domestic macro, all eyes will be on the Union Budget to be tabled on February 1. The biggest worry remains on the current account deficit (CAD) ― sharp slowdown in exports, coupled with higher imports have worsened the current account balance to levels not registered even during the taper tantrum of May-Sept 2013, according to the IDFC Mutual Fund report.

According to foreign brokerage firm Credit Suisse, India's inflation is well controlled and its growth trends may remain resilient despite global macro challenges. The brokerage added that the key trends to watch out for in 2023 are the sustainability of credit growth, equity inflows and solid corporate earnings momentum, which were the key drivers of India’s outperformance in 2022.

"These trends should persist, in our view, and keep India’s valuation elevated. We expect moderate returns in 2023 and would selectively buy on dips, given our constructive view of the Indian market in the medium term," Credit Suisse wrote in its latest report.

The Nifty's corporate earnings are projected to grow by 15 percent and 13 percent during FY24 and FY25, based on Bloomberg consensus. Credit Suisse does not expect any material cuts in this as cost pressures are now abating.