DAILY VOICE | FII selling may continue in May; GDP growth rate unlikely to surpass 11% in FY22: Amit Jain, Ashika Wealth

Q FIIs have net sold nearly Rs 10,000 crore of shares in April so far after remaining net buyers for the six consecutive months. What are the major reasons behind FII selling in April? Do you expect outflow to continue in May as well?

Due to increasing US bond yields and some uncertainty around new proposed higher capital gain tax in US, FIIs are re-balancing their Asian market portfolio, hence, we are witnessing sell-off by them in the Indian market. In our view, this selling may continue in short term as second wave of COVID-19 may seriously dent hopes of strong GDP growth this fiscal. This unseen factor will keep any significant upside for market under check from medium-term prospective.

Q While FIIs were on a selling spree, DIIs have been net buyers in April. In previous months, the trend was opposite which led to a sharp upside in the market. What does the current trend indicate?

This trend will always continue because if both start buying then market may get into a bubble stage. However, in the past, we have seen that FII selling creates negative sentiment in HNIs and retail clients. Hence, midcap stocks correct post this trend.

Q Do you think the rising state-wise restrictions to reduce the spread of COVID-19 will hit earnings growth for the June quarter? Have you reduced your earnings growth estimates for FY22?

Yes, it will certainly impact the Q1 earnings of FY2021-22 for most of the sectors. However, this downside risk may be very limited for Pharma, FMCG and IT. In medium term, we are cautiously bullish on these sectors.

Q What will be the impact of the second wave of COVID-19 on the Indian economy in Q1FY22? 

The impact on Indian economy may be evaluated only after a month, as the severity of impact depends upon coordinated efforts taken by central and state governments. At this moment, I can say that with this second wave of COVID-19, we may not surpass 11 percent GDP growth rate.

Q If there is more selling pressure in the coming weeks, what are the key sectors one should invest in and why?

Globally, markets are trading at high P/E valuation compared to their historic valuations, however this dichotomy between stock market and real economy may continue due to excessive liquidity. At this point in time, we see some value only in select PSUs, FMCG and Pharma names.

Q  The market, so far, has not seen any major impact of record infections and in fact getting buying support on every major fall. What are the key factors that are supporting the market?

The only factor which is supporting this rally is global liquidity which is chasing growth and that possible growth potential reflects only in the Indian economy. Hence, every correction in the domestic stock market is a buying opportunity. This decade shall be India's decade till 2030. The only suggestion for investors is to follow staggered investment process at this valuation and don't leverage much as markets are fairly valued. Long-term investors may deploy 20 percent into equity at this moment.

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