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After being net sellers for the whole of 2016 and the early part of this year, foreign institutional investors are back in buying mode since the Union Budget was announced on February 1. FIIs have so far bought stocks worth close to ₹2,400 crore in February.
But, if you thought that this is an indication of foreign investors’ sentiments towards India’s economy, you could be wrong. Jimeet Modi, CEO at SAMCO Securities pointed out that FIIs have got into risk-on trade related to emerging markets and their renewed buying has got nothing to do with developments in the Indian or the US economies. Risk-on, risk-off investing is a process where investors move between countries that are riskier but potentially higher yielding investments.
“Be it China, Taiwan, or Indonesia, the whole emerging market pack is rallying. The MSCI Emerging market ETF index has rallied 12.5 per cent to 38.2 on Friday (February 10) compared to the 2016 low of 33.96 touched on December 22,” he said. DIIs continue to lend their support aided by SIPs of MFs and the last quarter being the strongest for insurance companies. In addition to ₹4,748.97 crore in January, DIIs have bought another ₹2,189 crore in February. However, while FIIs have been steadily and mostly buying in February, DIIs’ behaviour has been quite lumpy, partly because of the FY17 coming to a close and adjustments on tax-saving angle. DIIs have been selling consistently for the last five days with the amount adding up to ₹946 crore.
EMs underperformEMs had underperformed developed markets in 2015 and 2016 due to slowdown in many of the economies and US markets looking attractive on improving economy and expectations of rate hike.
Dharmesh Kant, Head — Retail at Motilal Oswal Securities pointed out that the trend of buying by FIIs will continue though developed markets looks more attractive than emerging markets. According to him, inflows by DIIs will become even more aggressive as there is no other investment option currently available in India. Even Modi of SAMCO Securities shared a similar view about DIIs. “Buying by DIIs is more of a structural story with the SIP culture kicking in,” he said.
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