FIIs bullish on monsoon, reform hopes

  • Nachiket Kelkar
  • Updated: May 31, 2016 06:14 IST

MUMBAI: Foreign institutional investors (FII), who shunned India’s stock markets in January and February leading to massive forex outflows in the first two months of 2016, have been net buyers ever since — a tacit thumbs-up to its policies.

As the budget displayed seriousness in sticking to fiscal targets, foreign investor sentiments were buoyed as corporate earnings showed signs of recovery in the fourth quarter and the met department predicted a healthy monsoon.

Globally, too, with liquidity in abundance due to negative interest rate regimes in markets such as Japan and Europe, more funds are expected to come into growth markets such as India, top foreign brokerages said.

FIIs sold Rs 16,000 crore worth shares in January and February, tracking a wider global sell-off. But with the Budget, the tide turned. In May, for instance, FIIs bought Rs 1,500 crore worth of equity, taking the total investments for the calendar year 2016 (Jan-May) to almost Rs 14,407 crore, compared to Rs 17,800 crore invested in the entire calender year of 2015.

At least two foreign brokerages upgraded India in May. HSBC raised its rating to “neutral” and Morgan Stanley upgraded India to “overweight.” Even others remain positive on the country.

Investors hope that key reform measures that were stuck due to the policy paralysis in the final years of the previous government would now go through.

FIIs have fuelled a rally in the stock markets, with the Sensex surging nearly 16% from Budget day on February 29 to last Friday’s close, wiping off the 12% losses of the first two months of the year.

“Green shoots are emerging with data improving over the past few months, including demand for cement, long steel consumption, and power. Commercial vehicle and construction equipment sales also suggest domestic demand is picking up,” said Devendra Joshi, equity strategist, Asia Pacific at HSBC Global Research.

Deutsche Bank, which expects Sensex to touch 29,000 by December 2016, is also “overweight” on consumer staples as well as durables, apart from media, utilities and select financial services companies.

“Fundamentally, we believe markets will do well when the earnings of corporates will increase. I believe in the next two years, corporate earnings will be on the upswing,” said Nimesh Shah, MD and CEO of ICICI Prudential Mutual Fund.

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