FPI Outflows May Continue For Up To A Year, Says Jefferies India’s Mahesh Nandurkar

Foreign investors have taken out an average of $3-4 billion (Rs 23,000-30,000 crore) from the Indian equity market over the last six months, and the trend may continue for the next nine to 12 months, according to Mahesh Nandurkar of Jefferies India.

Investors started to cut down their weight in expensive stock markets like India and moved towards value markets like China, ASEAN and Latin America, he said in an interview with BloombergQuint's Niraj Shah.

Foreign portfolio investors have net sold Indian stocks worth Rs 1.65 lakh crore since September. The outflow started because of higher valuations and in anticipation of U.S. Federal Reserve increasing interest rates faster than expected. And it was amplified by global uncertainty stemming from higher energy prices following Russia's invasion of Ukraine.

There is a change in global investment style with investors moving away "from growth stocks and markets to value markets and stocks", Nandurkar, managing director of Jefferies India, said. According to him, the trend started towards the second half or the fourth quarter of the previous calendar year.

Money movement to markets like Mexico coincides with their respective central banks "keeping a proactive stance on rate hikes".

The Latin American and ASEAN markets also stand to benefit from the opening up of global tourism and travel, thus making them more attractive to foreign investors than India right now, said Nandurkar. Even though India continues to outperform regional benchmarks, foreign institutional investors "don't seem to be in a hurry to get back into India", he said.

Bullish On Economy, Earnings

A global slowdown, foreign investors moving away for a while, high inflation, and rate hikes globally are some of the factors which may keep the market "sideways", said Nandurkar.

But the support from domestic retail investors pushes for a bullish stance, he said. For FY23, he estimates corporate earnings growth to be about 15%, even if markets are "in a sideways movement" for the next 9-12 months, Nandurkar said.

According to him, two-thirds of the market will not see earning cuts. Hence, the overall impact of a sideways market trajectory will not be a lot in terms of earnings, he said.

Despite certain positive indicators, Nandurkar warns that there may not be "any big upswing" or "big positive returns" coming in over the remaining part of CY22.

Sectors To Watch

"Even though we are seeing margin pressure for sectors like auto, cement, consumer staples, pharma, put together these are about one third of the market by weight," Nandurkar said.

Banks and financials, which are roughly 35-40% of the market, have bottomed out in terms of earnings and growth, he said. He expects the bottomed-out sectors to grow due to strong demand and currency depreciation.

According to him, telecom and metals are unlikely to see much downside in terms of earnings and growth.