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A new Fed rate-cut cycle, stronger domestic policy support, and a rebound in earnings could draw foreign investors back to Indian markets, says Julius Baer’s Mark Matthews.
While there may be some concerns around volatility in the market, there is a wide belief of optimism among most market experts amid signs of stabilizing investor confidence, following months of turbulence.
Experts believe a mix of global and domestic factors have triggered the sharp reversal in the FII sentiment, and one of them is a steep rise in bond yields globally, particularly in the United States and Japan.
He also said that the bulk of the foreign selling may be behind us, and the ferocity of the outflows may not continue. Markets are likely to bottom out soon and FIIs will re-look at India, Venugopal Manghat added.
Enam Holding said they are sitting on some cash, after having turned cautious on Indian equities since September 2024. They do see opportunities after the recent correction, said Sivaram, but are largely in a wait and watch mode.
India stock bulls point to a long-term growth story that is still intact. And valuations have cooled a little, with the recent correction bringing the Nifty 50’s valuation slightly below its five-year average of around 19 times forward estimated earnings.
Corrections are unpredictable. By selling stocks to avoid pain, you can miss the next gain - Peter Lynch
Goldman Sachs Group Inc. also tactically turned neutral on Indian equities from overweight last month, citing slowing economic growth and high valuations.
As the US elections approach, FIIs are shifting their focus to selling in emerging markets, driven by rising interest rates in the US
Escalating Israel-Iran tensions, the rise in bond yields due to hotter-than-expected US inflation and amendment in the India-Mauritius tax treaty is likely to impact FII flow and dampen the sentiments.
The sustained rise in the US bond yields, high crude oil prices and stronger US dollar have triggered continuous FII selling. DIIs, on the other hand, continue to receive good fund inflows, and so long as the Indian economy continues to do well, fund flows into DIIs will sustain, say experts
FII selling is a combination of ETF redemptions, the unwinding of leveraged positions, and algo-trading. But, most of the markets across the world are behaving in the same fashion, says Sundaram of o3 Capital.
Much will depend on what happens in the equity markets. Yesterday saw FII selling as well and if there is a follow through of the nature we saw on Monday, then 63/USD could be taken pretty easily.
"For the past few days, the market has been reacting with a fear after listening to RBI governor I would say it is positioning itself with a view of no rate cut now," Manish Wadhawan of HSBC told CNBC-TV18.
CNBC-TV18's Gopika Gopakumar reports that the banking stocks were singly responsible for the bloodbath on the D-Street today. The banking index, Bankex, accounts for over 25% of the Nifty, and it falling a dramatic 3.5% today, dragged the markets down over 2%.
