Nifty’s resilience amid ferocious exit by FIIs: Should you rejoice or worry?


There seems to be no let-up in FII sell-off in the Indian market. The daily sale numbers have been over a billion dollars for a while. This calendar year alone (Jan to March), the tally has trumped the trillion (Rs) mark by a wide margin. FIIs have pulled out a staggering amount of over $20 billion (net sales) since Oct last year.

To put this in context, during the March 2020 fall amid the pandemic, it was much less than $10 billion. Going back, even during the global financial crisis in 2008, the numbers did not cross $15 bn dollars. What is happening now is more than an exit as past sell-offs are very much pale in comparison. It is an exodus on an elevated scale. Such an elevated exodus should have hit investors extremely hard, if one goes by the nasty fall (both during GFC in 2008 and in March 2020) in earlier such occasions with much less FII sell-off. But investors, though bruised this time, are not completely knocked out.

Sensex and Nifty seem to have survived the FII scare with marginal losses. Year to date, they are down by a little over 1.5% in this calendar year, but not by a lot. Same is the case with broader markets. Small and mid-cap indices have scraped through the scare without a serious scar. They are down by 5.63% and 4.73%, respectively. All these numbers are as on 25th March.

The level of resilience that the Indian market has exhibited has seriously surprised even the most seasoned investors. Some of them are genuinely perplexed. If someone had told them in the beginning of the year that oil is going to be flirting with 130$ level amid a raging war in Ukraine and FIIs would be pulling out en-masse from emerging markets on Fed’s tightening and taper cycle, they would have expected rupee and stocks to have got massively ravaged big time in India. But here we are now with rupee barely budging and stocks surviving with slim losses.

There are two ways to look at this resilience. One view is that the domestic investors, both retail (through growing SIP book) and institutions, who are playing a significant role in this resilience, are sold on India’s medium to long-term prospects. For them, the market is signaling a surge in economic and earning upcycle in the coming years. They expect the corporate growth and profit cycle to surprise significantly on reform-centric policy stability, China+1 trigger, super digitization upcycle, PLI-based manufacturing scale-up, etc. These investors belong to the most bullish camp. On the other side, the bearish investors believe that this resilience may give away to a much bigger fall if the domestic investors give up their support at some point on relentless FII selling amid growing fears that the commodity inflation may slowly seep into a structural stagflation. As per them, it is better to wait on the sidelines. Only time will tell which way the wind will blow.

It is now critical to understand the historical perspective. Else, one will get frozen into inaction clouded by short-term uncertainties. It is important to remember that no macro risks in the past had a lasting impact beyond a few quarters. If one goes back and look at the past macro challenges in the previous cycles, every macro event has been a clear buying opportunity in hindsight. Even in the worst global financial crisis of 2008, where everything was crumbling down like nine pins, the event did not last beyond three quarters for the market.

The entire FII selling saga can be looked at from another view as well. That is, what would happen to the market when much of the FII exit money comes back, which it usually does, after normalcy returns? Even if half the money ($10 bn) comes back in a hurry, one can imagine where that might take the market to, especially when both local and global investors are on the same buying side.

Based on their investing horizon, investors should capitalize on this consolidation to build a structurally strong portfolio on bottom-up basis to reap exceptional returns over time. More so, because the market seems to have more or less discounted the taper cycle and interest rate hikes from Fed. What is still not discounted is how far the risks from geo-politics can go. Can it become a wider conflict or will it get contained? What happens on that front will determine how market will trend in the short-term.

(ArunaGiri N is Founder CEO & Fund Manager, TrustLine Holdings Pvt Ltd. Views are personal)


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