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Why FIIs Reduce Their Stakes in Indian Markets...
Thu, 5 Nov Pre-Open

While many are optimistic about the Modi government, a different story has been brewing somewhere else. The hopes for 'Achhe Din' are still alive, but not for Foreign Institutional Investors (FIIs). As seen by their money inflow patterns, it seems that FIIs may have given up hopes on reforms promised by the Modi government. Or at least, they are tired waiting this long.

To know the reasons behind this, let's take a look at all the connected threads.

FII part ways with India...

As an article in Business Standard stated, net inflows for the first ten months of the current fiscal stood at Rs 218 billion. On the other hand, FII inflows during the calendar year 2014 totalled Rs 981.7 billion. While the periods are not comparable, there remains a wide gap between the two.

We are seeing this because FIIs are moving their attention to other economies. Pick-up can be seen in many global markets. With that, FIIs feel they have better places where they can invest rather than wait for the Indian economy to improve.

What's the reason behind this?

As can be seen, quarterly results of companies have not surprised many. Most of the companies missed their estimated projections. Only some companies in a few pockets outperformed. Moreover, revenues and profits of companies are moving in opposite directions. Companies, too, have lowered their expectations amid this dampened environment. Some of the reasons to be blamed for this are-

  • Poor demand and a collapse in global commodity prices
  • Decrease in consumer demand on the back of poor monsoon
  • Limited success of stalled projects
  • Banks and financial companies burdened by bad loans

The road ahead...

India has many challenges to overcome. The economy has a long way to go before it returns to a robust growth trajectory.

In order to revive hopes, the government needs to act soon on the promised reforms. Only then will the earnings of India Inc start improving.

Coming to the FII activity, we believe that Indian investors should not base their investment decisions solely based on what the FIIs are doing. FIIs have their own set of criteria for investing in the markets, which may not be relevant for an Indian investor. For an Indian investor, a more bottom-up approach, which involves sticking to fundamentally sound companies trading at reasonable valuations, is apt.

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Jan 16, 2018 01:23 PM