FPIs turn selective buyers of blue-chip stocks

Published: June 9, 2020 8:38 AM

Even as FPI buying has resumed, the domestic institutional investors have remained sellers so far in June, pulling out Rs 1,600 crore from the stock markets as on Friday, data from the BSE showed.

In June, the velocity of buying by FPIs has increased with the average daily buying by FPIs improving to $519 million a day

By Urvashi Valecha

Buying by foreign portfolio investors (FPIs) in June so far has surpassed the flows received during the stock market’s all-time highs in January. FPIs have, till June 5, bought $2.59 billion worth of equities owing to the rush of liquidity globally and relatively cheaper valuations in the Indian market. However, some market experts believe that this may not be a sustainable trend.

In January this year, when the benchmark indices — Sensex and Nifty — touched a peak of nearly 42,000 and 12,300 respectively, FPIs had pumped in $1.37 billion in the Indian equity markets. Thereafter, the markets started came under pressure as the virus started spreading. In March, when the stock markets hit a trough, as the Covid-19 crisis was officially declared a pandemic by the World Health Organisation, FPIs pulled out $8.39 billion from the Indian equities, data from NSDL showed in March.

The reason being the economic uncertainty and difficulties attached with the Covid-19 pandemic. In June, the velocity of buying by FPIs has increased with the average daily buying by FPIs improving to $519 million a day, which is a large swing from March where the daily average outflow stood at $419 million. According to Sorbh Gupta, associate fund manager, Quantum Mutual Fund, the inflows that the market is witnessing is largely due to the rush of liquidity because of measures taken by central banks such as the US Fed and the European Central Bank (ECB).

Last week, the markets had risen 6% by participating in a strong global rally, which was fuelled by hopes of a post-lockdown economic recovery as countries around the world have started unlocking. The underperformance of the Indian stock markets is at negative 16.5% in local currency terms, this is in stark contrast to many global markets that are trading higher such as US’ Dow Jones, which is up by 0.9%. South Korea is trading flat, Germany’s DAX and China’s Shanghai Composite are trading 4% to 5% lower year to date. “Indian equities had become really cheap in May and so, the global fund managers could have thought of investing in them,” said Gupta.

Ever since the markets witnessed a recovery in March, a slew of marquee listed companies have tapped capital markets to raise funds through stake sales or large blocks have hit secondary markets. In May, GSK had decided to sell its stake in HUL through a block deal which took place on May 6 and saw participation from foreign investors. On the same day, FPI buying according to NSDL stood at $2.26 billion, making the flows for the first week of May positive. The average buying by FPIs for the first week of May then stood at $595 million which tapered through the rest of the month. The first week of June, too, saw stake sales in marquee listed companies such as Kotak Mahindra Bank and HDFC Standard Life. The average daily outflow in May stood at $31 million and in April the outflow was at $1.79 million per day.

UR Bhat, director, Dalton Capital Advisors (India), said that given the current ground realities, it is naive to assume that the recent strong FPI buying will continue for long without some correction setting in. “Most of the inflows in the equity market over the last few days were skewed towards marquee listed companies that raised funds through QIPs, as also some block deals in such names. It may not, therefore, be right to interpret the recent inflows as an all-round resumption of buying by FPIs. The recent inflows are much milder than the ferocity of selling we saw in March,” said Bhat.

Even as FPI buying has resumed, the domestic institutional investors have remained sellers so far in June, pulling out Rs 1,600 crore from the stock markets as on Friday, data from the BSE showed. This, according to Rusmik Oza, executive vice president – head of fundamental research, Kotak Securities, is because of the peak valuations in the equity markets. “Since the markets have moved up more than 35% from the recent low and valuations are close to peak on one-year forward PE basis many domestic investors could be taking profits.”

After the buying in the first week of June, India has now become the emerging market which has received the highest FPI flows for this month at $2.59 billion followed by Taiwan at $1.7 billion and Indonesia at $230 million, according to Bloomberg data.

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