Analysts do not see more FPI pullout going forward

Even as overseas investors pulled out funds after almost seven straight months of pumping in dollars, the stock markets may not see too much of a downside as domestic liquidity remains resilient, say experts.
"We are in the first leg of a correction, and this could extend a while longer, but with limited downsides, as investors remain optimistic about the implementation of structural reforms in land, labour and capital," Geojit Financial Services chief market strategist Anand James told PTI.
Noting that USD 2 billion fund outflows by foreign portfolio investors (FPIs) is only a temporary phenomenon, James said "with the US rate hike roadmap becoming less clear, and with no major FDI destinations emerging, India should remain a favourite among global investors".

"To this end, we see the present pullout by FPIs as only temporary. However, we will continue to watch signals from China, as commodities have recovered, and the past few months have registered solid PMI numbers," he added.
Overseas investors have so far pulled out a massive USD 2 billion from equities this month, unnerved by slowdown in the manufacturing and services sectors and the muted corporate earnings.
FPIs have pumped in over Rs 1.4 trillion into the domestic equities in so far this year. In Q1 of the current fiscal alone they pumped in USD 20 billion, taking their ownership in the domestic equities to 24.9 per cent or USD 388 billion.

According to Centrum Wealth Management executive director and CIO (equity) Kunj Bansal, the markets have gone up in a linear fashion from last December. Since then, the signs of a slight change in direction were seen only in the third week of this July.

"So, barring the volatility seen after hitting the life-time highs early August there has not been any meaningful, or a greater than 5 per cent correction since then," Bansal said.
"One can attribute the recent volatility to foreign funds pulling out after almost seven straight months of pumping in dollars, but we may not see too much of a downsides because domestic liquidity is resilient.

"There is a segment of HNIs who may have been left out in the one-way rally and some institutions having dry powder which are waiting to buy. Having said that, one cannot predict the global factors such as the Fed taper plan or any geopolitical risks that may cause a cross-wind for our markets as well," Bansal added.
However, he also noted that while it would be difficult to predict FPI fund movements in the short-run, the relatively stable currency, banking and settlement systems and supportive processes that are part of our markets should keep the smart money flows live.

On the earnings front, the experts are of the opinion that as the next two quarters are the festive ones and should give a better picture to evaluate how earnings will pan out for the year.
Also assuming that these would be without any broader disruption as was seen in the first quarter owing to GST rollout would be driven more by stock level performance.
Sensex has climbed down 2.8 per cent from 32,575.17 on August to 31,646.46 today. Similarly, the Nifty which scaled a new high of 10,101 on August 1 has also corrected 2 per cent to 9,884.40 today.