Indian Indices Trade on a Flat Note; IT Stocks Witness Buying

Mon, 17 Jul 11:30 am

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Share markets in India are presently trading marginally higher. Sectoral indices are trading on a mixed note with stocks in the IT sector and metal sector witnessing maximum buying interest. FMCG stocks are trading in the red.

The BSE Sensex is trading up 63 points (up 0.2%) and the NSE Nifty is trading up by 21 points (up 0.2%). The BSE Mid Cap index is trading down by 0.1%, while the BSE Small Cap index is trading flat. The rupee is trading at 64.35 to the US$.

As per an article in the Economic Times, foreign investors have pumped in nearly Rs 110 billion in the Indian capital markets during the first two weeks of July.

As per the latest depository data, FPIs invested a net Rs 4.9 billion in equities during July 3-14, and poured Rs 104 billion in the debt markets.

However, despite the above foreign inflows, foreigners seem less enthused about India compared to some other emerging market countries in FY17, as can be seen from the chart below:

FIIs Not Very Bullish at the Moment

As per an article in the Business Standard, FII flows in 2017 have been impressive at US$ 6.3 billion. But it is only 0.32% of the market cap of the Indian stock market.

1% is considered a sign of a full-fledged bull market. FII flows were 1.04% of market cap in 2014 when the markets were on a roll after the NDA came to power.

Things have not been great since then. The lack of big bang reforms was one reason why FIIs have been cautious.

That said, one shall note that the recent rollout of the Goods and Services Tax (GST) can again motivate FIIs to pour money in the Indian financial markets.

Only time will tell how things pan out on this front. Meanwhile, we'll keep you updated on the latest developments on this front.

Speaking of GST, the Goods and Services Tax became the order of the day at the start of this month. And all these months we have been subjected to a relentless propaganda by the government and the supporters of the GST, on how it will change our world, only for good.

Our colleague Vivek Kaul, has studied the finer aspects of the GST and predicted what could go right and wrong.

Download his special report - The Good, the Sad and the Terrible (GST).

In the news from global financial markets, Ms Yellen recently stated the US economy is healthy enough for the Fed to keep raising interest rates and begin winding down its massive bond portfolio. She hinted that the world's top economy is showing improvement. The economy continues to add jobs and is near full employment. Household consumption is steady. And business investment is improving.

Thus Yellen indicated the Fed would gradually increase interest rates and begin to reduce its US$4 trillion portfolio of treasury bonds and mortgage-backed securities this year. Ms Yellen also said that 'rates won't have to rise much further to get to neutral'.

This was key, a somewhat dovish statement.

Inflation remains a major concern in the US. It's still a bit below the Fed's 2% target.

It is important to understand the short term impact Fed rates can have on the emerging markets. Fed rate is the interest rate that the US Fed is willing to provide for banks in the US. Banks use this rate for their borrowing and lending activities. It increases savings deposits from borrowers, increases borrowing rates for customers.

Emerging markets like India generally have higher interest and inflation rates as compared to developed nations like US.

As a result, a lot of financial institutions borrow money from countries like US since it's cheaper. They invest that money in India since rates are higher.

As we stated in a recent edition of The 5 Minute WrapUp...

• With US Fed increasing interest rates, the interest rate difference between US and India comes down. As a result, risk-averse investors are likely to shift their money from countries like India to the US. The usual scenario after a Fed rate hike has been that of sharp fall in equity indices, a weaker rupee and sustained foreign fund outflows.

However, one must note that India has recently become resilient to these interest rate changes. Strong domestic inflows have negated the impact of foreign fund outflows.

Data from the past one year shows that BSE Sensex did not move more than 1% on either side after Fed announced its interest rate policy. When the US central bank hiked rates in December 2016, Sensex tripped only 0.3%, while after the rate hike in March it actually rose by 0.7%.

While the Fed rate hike, whenever it happens, might have a short-term impact, long term investors needn't be worried about the prospects of share market in India.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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