Reversal of foreign flows on cards, says Birla Sun Life Mutual Fund

FII flows should reverse on the back of an improving macro picture for India, says Mahesh Patil, co-chief investment officer

Indian equity markets saw the largest outflows from foreign institutional investors (FIIs) in 2018 since the global financial crisis in 2008. 

However, according to domestic fund house Aditya Birla Sun Life Mutual Fund (MF), the flows could improve. While sharing the equity outlook for 2019, Mahesh Patil, co-chief investment officer (equity) of Aditya Birla Sun Life MF, said FII flows should reverse on the back of an improving macro picture for India. “With a pull-back in oil prices, the current account deficit will improve and the balance of payments will also be in a better position,” said Patil.

“The improving flows from foreign investors, coupled with monthly flow of around Rs 10,000 crore from domestic MFs, should lend support to markets,” said A Balasubramanian, chief executive officer of the fund house. However, officials of the fund house acknowledged that the global liquidity situation is expected to tighten. They cited the global central banks’ unwinding of quantitative easing for this tightening.

This tightening of global liquidity is expected to lead to price-to-earnings multiples contracting. “In the last two years, price-to-earnings multiples of companies had expanded due to higher liquidity,” Patil said. While the fund house is positive on healthy earnings in FY20, market returns are expected to be in low-teens as this p/e contraction plays out. It sees Nifty earnings growing at 24 per cent in FY20. The Nifty earning (ex-corporate banks) is expected to grow at 15 per cent, which Patil deemed as an achievable target.