Foreign portfolio investors have sold Indian equities worth close to $600 million in the first five sessions of September, after offloading stocks worth nearly $2 billion in August.
Foreign portfolio investors (FPIs) have sold Indian equities worth close to $600 million in the first five sessions of September, after offloading stocks worth nearly $2 billion in August. From its peak of 32,575.17 points on August 1, the benchmark Sensex has come off by nearly 3% to 31,662.74 as of Thursday. At these levels the Sensex trades at a price-earnings multiple of over 18.6 times one-year estimated forward earnings, a 20% premium to the long-term average multiple.
Concerns over steep valuations and poor corporate earnings for the June quarter have seen investors take risk off the table. Earnings estimates for FY18 are being trimmed with almost every sector having seen a downgrade.
The tepid growth in GDP for the June quarter, of just 5.7% year-on-year, has seen economists cutting their growth forecasts for the year. Net profits for the Nifty set of companies fell around 11% year-on-year in Q1FY18, disappointing the Street. “Consensus Nifty FY18 EPS growth now stands at 11% year-on-year and we continue to believe over the next two quarters this may fall to single digits,” Credit Suisse wrote.
Profits for FY18 are now expected to grow by just about 1.5-2%, according to Kotak Institutional Equities, following the earnings downgrades in several sectors such as banks, metals and mining, and pharmaceuticals. “We do not rule out further downgrades if the economy fails to recover quickly from the temporary disruption arising from demonetisation and implementation of GST,” the brokerage noted. It added that government expenditure can support GDP growth up to a point.
Among emerging markets, India witnessed the highest outflows in September, followed by South Korea which saw an outflow of $291 million. FPI sales in Indonesia were at $283.9 million and $231.7 million in Taiwan. The selling in August was the highest monthly outflow since November 2016 and the net investments now stand at $6.4 billion so far this year.