Domestic flows to continue as FII outflow pressure easing: Buoyant Capital's Jigar Mistry

FII outflows, he says were influenced by rupee depreciation against the dollar, even as the dollar itself weakened globally.

Even as foreign institutional investors (FIIs) continue to trim positions, domestic flows into Indian equities remain strong. According to Buoyant Capital's Jigar Mistry, this trend could support markets in the coming year.

“Even though markets have been relatively flat over the past two years, we are seeing continually strong SIP data,” said Mistry in conversation with Moneycontrol's N Mahalakshmi on The Wealth Formula Podcast.  He noted that this signals that there is some fundamental shift happening and that equities as an asset class are being viewed as permanent, and finding a permanency in household asset allocation compared to other asset classes.

Mistry noted that household financial savings directed toward equities stand at around 5.6%, up from 0.7% in 2014. While growth has been significant, it still lags developed markets, where equity allocations often exceed 20%, and in the US, reach over 40%. Mistry added, “If you pencil in something like 10 percent of total household savings coming to equities, with nominal GDP rising and savings percentage remaining the same, we could see Rs 10–12 lakh crore of flows next year from Rs 4.2 lakh crore last year. There is still a lot of room to explore where this goes.”

FII outflows, he says, were influenced by rupee depreciation against the dollar, even as the dollar itself weakened globally. “With the dollar depreciating, money moved out to Hong Kong, Taiwan, South Korea, but didn’t come to India because the rupee depreciated against the dollar,” Mistry explained. “At their peak, the RBI started shorting a lot of dollars in the NDF markets which eventually had to be brought onshore. When sterilized, this created a very large banking deficit and gave a confusing signal that the RBI didn’t have a handle. That, along with valuations, led to FII exits.”

He added that the situation has largely stabilized. “The rupee is now back to its levels, valuations are a little more comfortable than a year back, and domestic investors are continuing to commit, supporting equities going forward," he added.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.