The relentless outflow of foreign institutional investor (FII) funds has dealt a severe blow to Indian equity markets, driving a four-month correction in the Nifty 50. Veteran market expert and Helios Capital founder, Samir Arora, told Moneycontrol that January’s heavy FII selling can be attributed to India Inc's weak Q3 earnings and the depreciation of the Indian rupee.
Arora also pointed out the disproportionate sell-off of Indian equities by FIIs in January, stating that it cannot be entirely blamed on global factors. "The sharp declines seen in mid- and small-cap stocks were largely due to the unwinding of leveraged trades," he explained.
Among Asia-Pacific markets, India witnessed the largest FII outflows at $8.2 billion year-to-date. While other major markets—including South Korea, Taiwan, Indonesia, Thailand, Malaysia, and ASEAN nations—also suffered from FII selling, the quantum was significantly smaller, ranging between $0.1 billion and $1.3 billion.
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Despite this, Arora remains optimistic that the FII exodus will soon slow down, arguing that such aggressive selling is unsustainable. He believes that once FII selling eases, retail investors—who typically follow price trends—will also stop offloading Indian stocks. Based on these expectations, Arora feels the market is somewhere near its bottom.
Adding to the positive sentiment, Arora also noted that other challenges like liquidity tightness, poor results, higher inflation and interest rates have already been dealt with, leaving a level playing ground for a market recovery.
Looking ahead, Arora also anticipates an earnings recovery from April onwards thanks to last year’s weak base due to monsoons and government spending cuts.
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.
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