FPIs turn buyers, snap 11-session selling streak

Foreign portfolio investors turned buyers on Friday for the first time in May, snapping a 11-session selling streak that saw a selloff of over ₹37,000 crore in the cash market.

Market pundits attribute the recent bout of selling to a combination of factors — the possibility of the US Fed maintaining a status quo on interest rates for longer than expected, China trade and the uncertainty around the outcome of the domestic Lok Sabha elections.

India is still the third most liked Asia Pacific market after Japan and Taiwan, with 18 per cent of the panellists are overweight India, according to a recent survey of fund managers by BofA Global Research.

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The market outlook remains positive due to corporate deleveraging, capex uptick and steady profit growth expectations, a note by Motilal Oswal Private Wealth said.

Expectations that the incumbent government may be able to form a majority government has helped soothed nerves. FPIs, especially hedge funds with a short-term horizon, are believed to have led the recent selling spree. “The decline in US inflation in April to 3.4 per cent y-o-y and retail sales cooling off indicate a soft landing of the US economy, paving the way for rate cuts by the Fed. The improvement in voter turnout in the fourth phase of polling is positive. FPI-heavy stocks which bore the brunt of selling are likely to witness further recovery,” said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

Difficult to gauge

It was difficult to establish a clear relationship between voter turnout and final results, said a note by Nomura. The Indian National Congress-led coalition, for instance, upstaged the BJP-led government in the 2004 elections, despite lower turnout. The BJP-led coalition failed to topple the UPA government despite increased turnout in the 2009 elections.

Another note by Bernstein said it would take a lot more than just a drop in vote percentage for BJP tally to be significantly dented. Only a large vote share decline of more than 5 per cent and significant anti-incumbency would make the elections a market-defining event, the note said.

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On Thursday, three Fed officials warned of higher-for-longer interest rates. US stocks closed lower, hitting a break in a rally that brought the Dow briefly above the 40,000 threshold for the first time in history. The number of Americans filing new claims for unemployment benefits fell by 10,000 to a seasonally adjusted 2,22,000 in the latest week, indicating a still-strong labour market.

“Investors continue to recalibrate their rate-cut expectations following data showing a slowdown in inflation, as well as strong corporate earnings results,” said Deepak Jasani, Head – Retail Research, HDFC Securities.

Neutral on China

Investors have turned neutral on China after being underweight for months. China equities are 28 per cent off the January lows as policymakers seek to address investor concerns. Net 41 per cent of the panellists expect the China economy to strengthen over the next 12 months versus -10 per cent in February, according to BofA Global Research.

The Shanghai Composite index is up 6.5 per cent in the year to date compared with Nifty’s gains of 3.3 per cent.

China’s industrial output grew 6.7 per cent y-o-y in April, accelerating from the 4.5 per cent pace seen in March. However, retail sales, a gauge of consumption, rose 2.3 per cent in April, slowing from a 3.1 per cent increase in March.

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