Foreign portfolio investors (FPIs) have been sitting on the sidelines in the euphoric market last month. They invested just Rs 2,394 crore in equities in April, a far cry from Rs 30,906 crore invested in March and Rs 9,902 crore in February. In fact, FPIs have turned net sellers in the past few sessions and this trend is likely to continue. Historically, the month of May has seen intensified FPI selling.
The sell-in-May-and-go-away strategy, where an investor sells his stock holdings in May and gets back into the equity market in November, thereby avoiding the typically volatile May-October period, is a much talked about event in the equity market.
As per NSDL data for May since 2007, FPIs were net sellers in six of the last 10 years and net buyers in four years.
In the past two sessions, towards the close of April, FPIs were net sellers in equities, though market benchmarks Sensex and Nifty peaked to new all-time highs on April 25 and 26. Some analysts are sceptical of the current bull run continuing given high valuations.
Analysts have said that some mid-cap stocks may be in a bubble zone and investors should invest with caution. Since physical assets like gold and real estate are no longer preferred investment options, liquidity is chasing equity in search of better returns.
Kotak Institutional Equities, in its April 25 strategy report, said, “We are unable to fathom the rapid changes in the prices of stocks without any major changes in their fundamentals. It seems to us that the sole investment thesis in some cases is ‘liquidity’, which is quite bizarre since ‘active’ investors should be deciding on the fundamental value of stocks rather than leaving it to a nebulous issue such as ‘liquidity’. We can only hope that fundamentals improve sufficiently to support the valuations of stocks.”
March saw FPIs heavily investing in Indian equities as the assembly elections verdict made them confident of political stability and economic reforms in the country.
According to Kotak’s EPFR fund flow data--which primarily tracks mutual funds, ETFs, closed-end funds and variable annuity funds/insurance-linked funds among the emerging market flows—India has seen strong inflows of $1.7 billion in March, followed by Taiwan and Brazil, which have seen $937 million and $785 million, led by ETF inflows.
raviranjan@mydigitalfc.com
