$4 billion-FII retreat turns Nifty into world’s worst performing stock index

NEW DELHI: After being a rare oasis among all major troubled stock markets in 2022, Nifty is decoupling once again in 2023 but in reverse mode. As most major markets try to regain lost ground this year, India’s heartbeat index has turned into the worst performer with foreign institutional investors or FIIs dumping Indian stocks worth over $4 billion while going short on India and long other cheaper markets.

So far in the calendar year 2023, Nifty has lost about 2% of its value while both developed and emerging market indices are making investors richer. On a year-to-date (YTD) basis, the S&P500 is up 7%, UK’s FTSE 5.2%, South Korea’s KOSPI 9.8%, China’s Hang Seng 8.7%, Japan’s Nikkei 6.3% and Australia’s ASX200 6.9%.

Although trading 1% lower, Brazil’s Bovespa has also fared better than Nifty during the period.


One of the key reasons behind the underperformance of India vis-a-vis other global markets is the shifting of FII dollars into other cheaper markets like China, Taiwan, Hong Kong and South Korea where valuations are attractive.

NSDL data shows that FIIs have been net sellers to the tune of $4.2 billion on Dalal Street so far in the year.

“FIIs sold aggressively in January 2023 solely because they had pumped in a large amount of money, nearly Rs 1 lakh core in the second half of 2022, and they wanted to lock in part of the profits,” said Sunil Damania, CIO, MarketsMojo.

China’s re-opening has been a big theme for global money managers in the last few weeks. Dalal Street veteran and Singapore-based fund manager Samir Arora of Helios Capital, however, says this move from India to China makes limited sense and even called it laughable. “This trade of selling India to go to China looked ridiculous in January itself,” he said.

Ahead of the Budget, investors were worried over the increase in capital gains tax burden. While the fears turned out to be misplaced later on, the Adani controversy soured the mood in the last few days.

“The year looks difficult in general for the market. However, it is still a stock picker’s market and there are certain pockets of the market where deep value is available,” said PMS fund manager Siddhartha Bhaiya who runs Aequitas Investment Consultancy.

Will Nifty bounce back with a swag?
While there may be near-term pressure on the index, analysts say the Indian economy remains in a sweet spot in a worrisome global macro backdrop. An interim review of Q3 earnings of India Inc shows that the numbers have been mostly in line with market expectations.

“We foresee Nifty EPS to post growth of 11%/14%/13% in FY23/24/25. Thus, we maintain our Dec’23 Nifty target at 20,400 by valuing it at 20x on Dec’24 earnings,” domestic brokerage firm Axis Securities said.

The index is currently trading at 18.3x on a 12-month forward PE at 0.9 standard deviation to its long-term average. In terms of bond equity earnings yield ratio (BEER), Nifty is trading above its long-term average, indicating a slightly expensive equity market at current levels as against the bond market.

India is also trading at a premium to its emerging market peers on account of robust economic growth, strong earnings outlook, credit growth, government capex and domestic demand.

“FIIs still feel Indian markets are overvalued vis-a-vis the corporate earnings growth. Also developed markets like Europe and US have extremely attractive high interest rates, leading to shifts in the capital markets towards investment in developed markets,” said Prakhar Pandey, Founder and CEO, wealthtech platform Moolaah.

Global brokerage firm Credit Suisse said investors’ interest in Indian equities could remain elevated as India remains one of the most attractive markets for long-term investors. “Thus, any sharp corrections could be a buying opportunity from a medium-to-long-term perspective. We recommend that investors focus on sectors with high domestic exposure as the global outlook remains unfavorable,” it said while picking banks, banks, consumption, autos, cement and pharma stocks.

(With data inputs from Ritesh Presswala)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)



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