DIIs drive BSE Sensex, Nifty to record high, FIIs exercise caution
Mumbai: Domestic investors lifted the stock markets in July even as their foreign counterparts remained cautious ahead of June quarter earnings as businesses adjust to goods and services tax (GST).
Indian stocks closed at yet another record on Wednesday, but the market may not hold to gains if earnings fail to cheer, market participants said.
“FIIs are already overweight India. Fundamentally, GST implementation is positive in the long-term. However, earnings growth recovery may still be elusive for now,” said Gautam Chhaochharia, head of research at UBS Securities India Pvt. Ltd, adding strong flows from domestic investors are supporting the market. “A consolidation is not ruled out at this point though, given the strong rally so far.”
BSE’s benchmark 30-share Sensex and National Stock Exchange’s 50-share Nifty have added 2.86% and 3.10%, respectively, in July so far. They logged record closing highs of 31,804.82 points and 9,816.10 points, respectively, on Wednesday.
For the year to date, Sensex is up 19.45%, and is the best performer in Asia, followed by Hong Kong’s Hang Seng index and Korea’s Kospi Index which have gained 18.4% and 18.02%, respectively.
For the month to Tuesday, foreign institutional investors (FIIs) have withdrawn a net of $244.02 million cash from Indian shares, while domestic institutional investors (DIIs) have bought a net Rs3,592 crore.
On Wednesday, though, FIIs briefly turned net buyers to the tune of Rs361.25 crore, while DIIs sold a net of Rs330.58 crore.
According to fund flow tracker EPFR Global, in the first week of July, Indian equity funds saw net redemptions for the first time since late February. “In case of India, some investors are taking a step back until they see how domestic businesses and consumers respond to new national sales tax,” EPFR Global said in a release on 7 July.
Flows to EPFR Global-tracked emerging markets equity funds during the week to 5 July slipped to their lowest level since their current inflow streak began in mid-March. According to EPFR Global, an extended holiday weekend in the US, uncertainty about the pace of monetary tightening in the US and the timing of monetary policy in euro zone, North Korea’s latest missile test and political events in South Africa and Brazil all contributed to the loss of flow momentum. “Global flows at large are weak towards emerging markets, and India is no exception. Thankfully, domestic investors are actively investing, and that is supporting the market,” said Vikas Khemani, CEO of Edelweiss Securities Ltd.
“That said, markets may be in for a consolidation phase after the recent rally,” said Khemani, adding that earnings growth may be flat for now, and the adjustment to GST may also impact.
The June quarter corporate report cards are set to show disappointment in earnings growth due to uncertainty surrounding the implementation of GST—the biggest tax reform since independence. Apart from sector-specific issues, export-focused companies are likely to face the brunt of a rising rupee as well.