Short Call | Matter of time before FIIs bite; SBI, Kalpataru Projects, Sona BLW, Bajaj Finserv in focus

Strong domestic flows have been keeping the market high.

“While building a long term portfolio, diversify. No one can look ahead five or ten years and say what is the most promising industry or the best stock to own.” - T Rowe Price

At the start of the year, one of the popular theories was that foreign funds will have no option but to invest in India, given the strong performance of the domestic market. The argument is sound, but so far, the numbers don’t seem to bear this out. FIIs have net sold around $3.5 billion worth of Indian equities since the start of the year. Banking, construction, and telecom are among the sectors they have been most bearish on.

Last week, Jefferies strategist Chris Woods wrote in his note that India's weight in the MSCI Emerging Market index has gone up, but foreign investors have still not shored up their exposure to Indian equities in the same proportion. Some market watchers say FIIs like India as a market but are not comfortable with the valuations as they see it to be high.  So far, strong domestic flows have been keeping the market high.

The good part is that even if domestic inflows suddenly dry up for some reason, the market should find support in the form of foreign fund flows. After all, as Woods writes, Indian equity markets are the only market across major emerging market economies which have consistently given more than 10 percent annualised returns over the last five, 10 15 and 20-year periods. So, it looks like a matter of time, before FIIs start buying into Indian equities again.

State Bank of India (Rs 759, -0.9%)

Bear argument: Despite having a comfortable loan-deposit ratio, SBI has been raising retail deposit rates. This will hurt net interest margins. Also, at

1.2 times price to book value, the stock is fairly values, feels Goldman.

Bull argument: SBI is among the only PSU bank to have been able to consistently increase its market share. Even though domestic and foreign institutions together hold 35 percent, this number has not changed for many quarters now. There is room for that number to go up.

Sona BLW Precision Forgings (Rs 649, +5.88)

The company received certification under the auto Production Linked Incentive (PLI) scheme.

Bull argument: The company has a Rs 240-billion order book.

Bear argument: The company is trading at expensive valuations and has little room for upside. FIIs have reduced stake in the company.

Bajaj Finserv (Rs 1,616.00, + 1.5%)

The stock gained over 1.4 percent, extending its gain to the third straight session

Bull argument: Bajaj Finserv to see gains from its acquisition of Vidal Healthcare. Analysts say this will give the company access to healthcare expenditures in hospitalisation.

Bear argument: Asset quality continues to remain a concern.

Kalpataru Projects International (Rs 987.05, +5.03%)

KPIL emerged as the lowest bidder for three packages for Saudi Aramco's Master Gas System (MGS) project.

Bull argument: Nuvama anticipates potential EPS upgrades and a re-rating of the KPIL stock as and when these projects are awarded, given the mega size of the projects. This may also qualify KPIL for more such large orders in the future.

Bear argument: Promoter's stake has come down to 40.6 percent in the December 2023 quarter from 51.5 percent in the year-ago period. KPIL management slashed FY24 consolidated revenue growth guidance to 20-25 percent year-on-year from 25 percent earlier.