Helios Capital’s Samir Arora on sustainable market growth: ’We should stop celebrating PE flows and encourage FII flows’

Ace investor Samir Arora of Helios Capital believes Indian investors should stop celebrating PE (private equity) flows and encourage FII (foreign institutional investors) flows.

In a post on X, Arora wrote: "My logic:

PE flows in a year into India are say US$ 25 billion.

This means plus/minus 7 yrs from now they will want to take out at least US$ 50 billion. Of course, India will be a bigger market by then and this PE will be replaced by (say) US$ 75 billion of new flows-US$ 50 billion to replace the outflows and an additional US$ 25 billion. Plus/minus 7 yrs from then the PE guys will want to take out US$ 150 billion (Assuming that PE funds double in 7 yrs in US$ terms. In their dreams this will be their dream to let us grant them).

This becomes totally unsustainable over time.

Now look at FII flows. On average they have invested US$ 20 billion per year. No fixed tenure and if they try to sell a lot the market falls and then they stop redemptions. Give them the same 15% type returns and they will never redeem. I say respect FII flows/encourage them and stop overly celebrating PE flows."

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After buying heavily in March, foreign investors net sold Indian equities worth more than ₹8,600 crore in the month of April. As per the data available on National Securities Depository Ltd (NSDL), foreign investor selling in Indian equities during April stood at ₹8,671 crore and ₹18,375 crore in May so far.

The share of foreign institutional investors (FIIs) in NSE-listed companies also fell to an 11-year low of 17.68 percent at the end of the March quarter, a decline of 51 basis points from 18.19 percent at the end of the December quarter.

Read here: Stock market crash: Why are FIIs selling Indian equities aggressively?

Higher US bond yields, the rise in India VIX, the outperformance of the Chinese markets, the hawkish stance of the US Federal Reserve, and volatility amid the ongoing Lok Sabha elections are some of the key reasons behind the recent selling by foreign investors.

Pranav Haldea, managing director of PRIME Database Group, noted that Indian markets are trending towards self-reliance, with domestic institutional investors (DIIs) expected to surpass FIIs in the coming quarters. Historically, FIIs have been the largest non-promoter shareholders in the Indian market, significantly influencing market trends, often causing declines when they withdrew their investments.

Read here: FIIs and DIIs are bullish on these five stocks. But should you buy them?

Overall, Indian equities have been on a positive trend this year so far, with the benchmark Nifty up 2.3 percent. However, it has lost around 1.6 percent in May so far after 3 consecutive months of gains. Weak global market cues, cautiousness amid ongoing Lok Sabha elections, in-line corporate earnings for the March quarter and sustained outflow of foreign funds have dragged the domestic equity market lower.

It rose 1.2 percent in April, 1.5 percent in March and 1.2 percent in February. However, it was completely flat in January of this year.

Going ahead, most experts see a strong long-term outlook for the Indian equity market but they see some corrections in the near term.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.