The share of foreign portfolio investors (FPIs) in the Indian market could fall further after hitting a 30-month low in November. FPIs continue to take risk off the table, having sold nearly $500 million worth of equities in January so far on top of nearly $4 billion of sales in November and December.
The share of FPIs as a percentage of the total market capitalisation was 19.3% at the end of November with the value of equities held at Rs 20.80 lakh crore. This compared with a value of Rs 22.26 lakh crore at the end of August when their share was 20.06%.
While FPIs have been continuously booking profits, domestic investors — mutual funds, insurance companies and financial institutions — have been buyers. In November, they shopped for stocks worth $2.7 billion, cushioning the market to some extent against sales by foreign investors. In December again, they picked up shares worth $1.4 billion. In January so far, they have purchased equities worth $450 million.
The Sensex hit a fresh two-month high on Tuesday to close at 27,140.41 points, but is still lower than the closing on November 8 of 27, 591.14. The benchmark had yielded a dollar return in 2016 of -0.67%. In comparison, the South Korean Kospi gained 0.87% while the Taiwanese Taiex gained 12.8%. The Brazilian market posted returns of a huge 69%.
The weak rupee, which depreciated 2.6%, eroded market gains and while the South Korean won also lost value, the Taiwanese dollar gained 1.7%. Of the total outflows from emerging markets in the three months to December of close to $9 billion, more than half were from India.
Market watchers believe the profit-taking could continue unless there is a sharp rebound in earnings growth. According to Nomura, corporate profits for the three months to December could be disappointing following the disruption caused by demonetisation, given cash is a primary means of transaction across several areas.
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“Our analysts’ forecasts for 3QFY17 earnings point to a significant loss of momentum, after a rather strong 2QFY17. The numbers for Nomura’s ex-oil & gas PSUs and banks universe are showing the weakest sequential sales growth in the last four years,” the brokerage wrote on Tuesday.
At 27,140, the Sensex trades at approximately 19.11 times estimated FY17 earnings and 15.69 times estimated FY18 earnings.