Continued selling by foreign investors from Indian equity markets along with trade related uncertainties were among the factors that led the value of Indian rupee cross 90 against the US dollar on Wednesday. According to experts while this may impact the near-term market sentiment, the focus of FPIs will continue to focus on earnings, valuations, and clarity on trade related uncertainty.
Various factors including India’s negative return in the last one year, its valuation premium to emerging market peers, single digit EPS growth in the last five quarters, adverse impact of US tariffs, and primary market supply are prompting foreign investors to exit Indian equities. So far in this year they have net sold shares worth Rs 1,39,042.95 crore, however, in the last two months they net bought Rs 11,479.2 crore worth equities.
What did Vinit Bolinjkar say?
Vinit Bolinjkar, head of research at Ventura Securities explained that the selling has primarily been happening due to the India market valuations compared to other Asian market. “While they are finding opportunities in large caps, they have been selling a lot of small caps and midcaps, so there is a shift happening,” he said adding that 90 is an extreme level and RBI will have to intervene. He expects FPI flows to come after the holiday season but that’ll only be stock-specific and not like how they were in the bull market.
According to Harsha Upadhyay, CIO, of Kotak Mahindra AMC we have to look at rupee not just the dollar but how other competing economies have appreciated against US-dollar, a cross-currency impact needs to be seen to gauge whether we are competitive from a currency perspective.
Praveen Jagwani, CEO of UTI International had told FE in an interview that the upside to the decision of investing in India is very little for them and downside is huge, so there is asymmetric risk profile.
How did Nifty 50 close today?
On Wednesday, the India’s Nifty 50 closed lower by 0.2% at 25,986.00 as FPIs net sold shares worth Rs 4033.46 crore. Ponmudi R, CEO of Enrich Moneysaid: “Equity markets ended lower as the continued slide in the Indian rupee — which hit a fresh record low against the US dollar — prompted foreign portfolio investors to lock in profits, with the currency weakness weighing on their dollar-adjusted returns. Sectors that had rallied sharply in recent sessions, particularly PSU banks, automobiles, and consumer durables, witnessed the heaviest bout of profit-taking.”
Om Ghawalkar, Market Analyst, Share.Market (PhonePe Wealth) believes that a significant resolution of global trade uncertainty would be the main catalyst for a reversal of this negative FPI flow trend.
He noted foreign investors have been net sellers, contributing directly to the current currency pressure, despite resilient domestic fundamentals. “They are currently not favoring import-driven sectors (like Oil & Gas, Chemicals, or certain Capital Goods) as the sharply weaker Rupee directly inflates their raw material and input costs, hurting margins. The capital flows are instead gravitating towards Export-Oriented sectors, such as IT Services and Pharmaceuticals, which benefit from a weaker domestic currency that translates into higher dollar-adjusted revenues,” he said.
Upadhyay added, that this is going to play out in different ways but from overall earnings perspective it’s not going to be a significant change. Companies related to global commodities will see larger operating margins after conversion, he said.