After Indian markets saw Foreign Institutional Investor pull out Rs 15,000 crores in the month of August, the highest sell-off since last November, Angel Broking says that the trend is likely to continue. In its latest blog, the research and brokerage firm says that Foreign Institutional Investors (FIIs) have been aggressively selling across emerging markets and India has been no exception. The firm attributed the outflow to a combination of geopolitical uncertainty and weak earnings season in the June quarter.
Pointing to the reasons, Angel Broking says that profits have actually fallen by nearly 15% in the first quarter of this fiscal on a year on year basis, leading to the FII sell-off. Further, Angel Broking says that as the Nifty is currently trading with a P/E of 22-23 times, it does not leave too much of room for a valuation boost unless the earnings see a shift towards a higher growth trajectory. “FIIs have been worried that the much anticipated earnings momentum has been quite elusive,” says Angel Broking.
The research firm also points out that FIIs are concerned about the rising geopolitical uncertainty in the country. According to the firm, FIIs are apprehensive that with higher outlays required in the next two years for loan write-offs and farm rescue packages, the government may find it difficult to stick to its 3% fiscal deficit targets. The firm said, “With central elections less than 20 months away, the FIIs are expecting the government to focus a lot more on populist measures rather than hard reform measures.”
In its latest research report, DBS Research Group says that foreign portfolio inflows have moderated into the second half of 2017 in India, after a strong first half. According to the DBS, this appears to be more pronounced in the last two months, as total inflows thinned to $0.4 billion in August and turned to net outflows of $0.2 billion in September, from from a monthly average of $3.8 billion in the first half. The research firm attributed the fall to slowing debt inflows, as debt inflows accounted for three-fourths of total inflows in the first half.