Moneycontrol Pro Panorama | Indian market better-off, how should you roll the dice?

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Indian equities have shown remarkable resilience despite persistent selling by foreign portfolio investors and the spectre of rising inflation. Consumer price inflation breached the Reserve Bank of India’s (RBI) upper limit for the second consecutive month. Yet, economists and market observers are not expecting aggressive monetary policy tightening or a rapid hike in interest rates.

“The RBI would prefer to support growth, as it has been doing all along, and it could take the stand that the rise in crude oil prices is a result of the war and therefore temporary,” writes Manas Chakravarty in today’s edition.

In equity markets, foreign portfolio investors (FPI) have turned net sellers, with outflows even exceeding the global financial crisis levels on a trailing 12-month basis. Still, the benchmark Nifty 50 index is higher than the year-ago levels and is down less than 3 percent so far in 2022.

Comparatively, global indices such as S&P 500 and Nasdaq Composite indices have lost 12-20 percent this year.

Indian markets are receiving unprecedented support from domestic funds and investors, reflecting new-found enthusiasm for local equities.

“We are witnessing consistent buying by domestic investors in the face of unprecedented selling by FPIs during rare and extreme fear inducing events seen over the past few years,” Vinod Karki, equity strategist and vice-president at ICICI Securities, said in a note.

Indeed, an analysis by Motilal Oswal Financial Services shows steady inflows into mutual funds and moderation in redemptions. Against FPIs' cumulative sale of $36 billion, equity markets saw inflows of $27.9 billion from domestic institutional investors on a trailing 12-month basis, data collated by ICICI Securities show.

Even so, investors should not take the current trends for granted. Indian equities are trading at a premium to emerging market peers. The fallout of Russia-Ukraine conflict, monetary policy tightening by major central banks and the latest outbreak of COVID in China remains uncertain.

The US Federal Reserve’s decision on rates and the monetary policy this week should provide some direction on this front.

The ramifications of international sanctions on Russia can be far more dire, argues this FT piece. The world is interconnected as ever and consequences can stretch beyond fuel prices. Analysts are acknowledging the risks to the global economic growth and possibility of moderation in the US economy, a large market for the IT services and pharmaceuticals' sectors. Do read.

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Technical Picks: CDSL, Bank of Baroda, TCS, USD-INR, JSL and Gold Mini (These are published every trading day before markets open and can be read on the app)

R Sree Ram
Moneycontrol Pro