Foreign portfolio investors (FPIs) are once again stepping on the gas when it comes to pulling out of Indian markets. In the past fortnight, they have yanked out $1.7 billion amid disappointment over the Rs 20-trillion stimulus package and rising Covid-19 cases, despite multiple lockdown extensions.
The two-week rolling average for daily flows is currently at (negative) — $205 million — worst since March-end, when foreign institutional investment selling was at its peak due to major global risk aversion.
Since mid-April, FPI investment rally had improved, following aggressive stimulus measures announced by global central banks. While global liquidity conditions are benign, experts say overseas investors are preferring to invest in countries which have been more effective in combating Covid-19 and with better stimulus measures.
“Several countries have started easing Covid-19-related containment measures. In some cases, despite uptrend in infections. This could be a risky strategy, but economic mobility has seen pick-up there. In the near term, it is reasonable for investors to assume those economies will recover faster,” said Abhiram Eleswarapu, India head of equity research at BNP Paribas Securities.
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So far in May, India is the worst-performing among major global markets, with the benchmark Sensex down 10 per cent in dollar terms. In comparison, Asian peers have fared much better. South Korea is down just 1.5 per cent, Indonesia and Taiwan are down 2.5 per cent, while Thailand and Malaysia are in the green.
“FPIs are closely observing the evolving Covid-19 scenario worldwide, and are positioning themselves as being risk averse. How the governments of emerging markets (EMs) manage Covid-19 will be a key area of concern as far as overseas investments are concerned,” said Aamar Deo Singh, head-advisory, Angel Broking.
While no country has been able to entirely combat Covid-19 yet, the weekly charts are looking better for many other countries, experts said.
“Countries like Vietnam have managed the Covid-19 crisis better. They started the lockdown much earlier. Quite a few companies are shifting base to Vietnam from China. We are also trying to woo those companies. However, it seems we will take time to sort things out, like land and infrastructure. But we cannot be very successful because we never planned for it,” said U R Bhat, director, Dalton Capital Advisors (India).
The Vietnamese market has been an outlier this month, gaining 12 per cent.
Some point out that FPI selling has accelerated due to disappointment over the Rs 20–trillion fiscal package.
“There are doubts on the efficacy of the economic package, which totalled 10 per cent of gross domestic product (GDP), but only 1 per cent of GDP appears to be fiscal stimulus. The comparable number for EMs is about 4-5 per cent,” said Eleswarapu.
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Experts say overseas investors had pinned hopes greater fiscal push and steps to revive demand in the immediate term.
“FPIs were expecting a quantitative easing kind of action, which did not happen. The slowdown will continue for some more time, and probably we will see negative growth in GDP at least for this quarter for sure and maybe for this whole year. And earnings are going to be quite bad. And probably even big companies are going to incur losses. All these factors are a dampener of sorts. India has not been able to open up its economy, and most of the economic hubs are in the red zone. Even if they open up non-red zones, it may not matter for economic activity,” said Bhat.
Eleswarapu of BNP says India’s benchmark gauges are high on financials stocks, which face the highest earnings downside risk due to Covid-19. Also, “companies that have reported earnings so far this season, nearly half have missed analyst estimates,” he adds.
