A strong revival in foreign institutional buying in March also seems unlikely, said analysts though seasonal trends show that overseas investors have mostly purchased during the month.
In the past 10 years, foreign investors have been buyers of domestic stocks in March on eight occasions and sellers on two.
Agencies“The pace of foreign inflows are likely to remain moderate in March,” said Sriram Velayudhan, senior vice president, IIFL Securities. “Cues from US inflation will have a bearing on the impending rate cut cycle and subsequently emerging market flows.”
On Thursday, the Sensex and Nifty gained 0.3% and 0.1%, respectively, ahead of the release of a US inflation reading overnight that is seen playing a key role in determining the Federal Reserve’s interest rate cut timing.
In February, the Sensex and the Nifty rose about 1.3% each as the market swung between gains and losses for most of the month.“Inflows in February were miniscule in nature since most foreign investors only engaged in trading,” said Abhilash Pagaria, head of alternative & quantitative research at Nuvama.“While the FTSE index rebalancing may lead to some inflows, foreign investors are unlikely to return to Indian equities with a bang.”
Analysts said India’s recent outperformance, which has resulted in share valuations getting pricier, is pushing foreign fund managers to consider cheaper markets in the region.
“Foreign investors are shying away from Indian equities due to high valuations and deploying funds in other emerging market economies like Korea and Thailand,” said Pagaria.“Unless there is some deep correction in the markets, strong inflows remain unlikely.”
Pagaria said that currently there are no strong signs indicating a foreign inflow for March.
Foreign inflows have been consistently strong in pharma, FMCG, auto and capital goods over the last few months, however the financial sector—the most influential on the benchmark indices– has witnessed selling over 30,000 crore in January. Analysts said the inflows in February were minor and although the foreign investors did offload shares, the pace of selling was reduced.
“Foreign investors have engaged in major selling in the financial space (based on NSDL fortnight data) in February as that sector is under pressure,” said Velayudhan. “The pace of overall foreign selling has however moderated in February compared to January.” Velayudhan said that post elections, the second half of the year could witness stronger foreign inflows.
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