With FPIs turning buyers, is the worst over for Indian equities?

KS Badri Narayanan Chennai | Updated on October 17, 2019 Published on October 17, 2019

FPIs have bought stocks worth ₹2,750 crore since last Friday; even DIIs, normally contrarian, have bought stocks worth ₹1,406.67 crore in the last four days

Even as the IMF and the RBI expect a sharp dip in India’s Gross Domestic Product (GDP) growth, foreign portfolio investors (FPI) have turned net buyers in the last four consecutive trading sessions. The last time they were net buyers for more than four days was in April.

What is heartening this time is that domestic institutional investors (DII), too, have joined hands with FPIs in the last two days. Generally, FPIs and DIIs adopt contradictory stances.

FPIs have bought over ₹2,750 crore in the secondary market since last Friday, while domestic investors, despite remaining sellers on Friday and Monday, bought in ₹1,406.67 crore in the last four days.

Does this mean, better days are ahead for Indian equities?

Short-term volatility

According to analysts, Indian markets may remain volatile in the short-term, but they do not see any big fall from current levels.

Though it is too early to read into their buying activity, the market is nevertheless almost close to its bottom level, as most of the negatives are priced in, said a Chennai-based analyst. The Centre’s recent tax sop to India Inc and the rate cut by the Reserve Bank have definitely changed the mood of a few institutional investors, he added.

Earnings season starts well

The results season has also begun on a positive note, with most of the companies, from IT services to the cement sector, to consumer goods, doing well, analysts said.

“The earnings season has started on a decent note so far with most of the companies meeting expectations. It is likely to gain momentum as some of the heavyweights will be declaring their results over the next few days. Further, market participants will be keeping a close watch on developments with regards to US-China trade talks, the Brexit deal as well as currency and crude oil price movements,” said Siddhartha Khemka, Head — Retail Research, Motilal Oswal Financial Services Private Ltd.

Nifty targets

Post the mid-September corporate tax cut, global fund manager UBS set a target of 12,300 for the Nifty by June 2020. “This is based on an 18x12M forward PE multiple, in line with the last one-year peak and higher than the 3- to 5-year average, as the reform narrative will be likely supportive beyond an improved medium-term growth outlook and sentiment. We are overweight on financials, property and oil & gas, and underweight on autos, IT services and SMIDs,” said Ms Tanvee Gupta Jain, Economist, UBS Securities India Pvt. Ltd.

BNP Paribas, in a note immediately after the tax cut, said: “We are overweight India in our Asia ex Japan Model portfolio. Our December 2019 Sensex target of 40,500 provides a 4 per cent potential upside, but does not factor in the latest tax cut impact.”

Goldman Sachs has raised its Nifty target to 13,200. “If all MSCI India entities opt for lower tax, it would result in tax savings of $6 billion; boost FY-20 profits by 9 per cent,” it said.

Morgan Stanley had also raised Sensex target to 45,000 By June 2020 while Nomura expects Nifty to touch 12,545 by March 2020. Another foreign broking major Citi had raised its March 2020 Sensex target to 40,500.

According to brokers, the sentiment towards broader market is improved led by the insurance sector and select mid-caps.

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Published on October 17, 2019
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