May sees steepest FPI equity outflows since August 2013; MFs save the day

By Amit Mudgill

Attractiveness of Asian peers, MAT issue and concerns over a slow revival in domestic earnings dampened foreign portfolio investors’ (FPIs) sentiment, triggering a selloff to the tune of Rs 5,768 crore in domestic equities by the institutional category in May.

This was the first time since October 2014 when FPIs sold domestic equities on a monthly basis.

The magnitude of FPI sell-off in May was last observed in August 2013, when concerns over rupee tumbling below 67 a dollar levels were roiling the domestic markets.

In August 2013, FPIs were net sellers to the tune of Rs 5,922 crore.

Meanwhile, buying by domestic mutual funds made sure that the market clocked gains in May. The domestic institutional category was net buyer to the tune of Rs 4,620.80 crore for the month till May 28, Sebi data reveals.

The month saw the BSE benchmark Sensex climbing 817.13 points, or 3.02 per cent, to 27828.44, BSE data show.

Market expert Ambareesh Baliga said, "FPI outflows were seen mainly because of concerns over MAT on capital gains. In addition, some of the Asian markets were faring pretty well during the month. That led FPIs to chase the momentum in those markets. On the other hand, DIIs were seen buying equities as investments in systematic investment planning (SIPs) are seeing a rising trend."

Baliga said that he would remain cautious on markets in the short to medium term, but remained upbeat on the long- term outlook as he expected the Modi government to meet its reforms’ intent.

"I believe that the Modi Sarkar work has been fantastic, but markets have run a little more ahead of time, and that is why markets have to wait, they have to consolidate," said Madhusudan Kela, Chief Investment Strategist, Reliance Capital, in an interview to ET Now.

"Corporate earnings will take time to pick up. Even as one can make a case that it may have kind of bottomed out, I do not think that we should expect big miracle in a quarter or two. I still believe that 2015-2016 is going to be a year of consolidation.

But, you can expect a much large jump in corporate earnings and that may last for two-three years," Kela added.

Raamdeo Agrawal of Motilal Oswal Financial Services told ET Now, "I do not think there is much to read in the corporate earnings in the short term, but my sense is that Q4FY16 should be one of the best. That is the sense we are getting, but it is still early days."

Data available with NSDL show that FPIs have pumped in Rs 42,426 crore in Indian equities so far this calendar year.

In 2014, the institutional category infused Rs 97,054 crore in local equities. Data available with BSE show that Sensex has returned a meagre 1.5 per cent so far this calendar. Meanwhile, the rupee has moved down from around 62 levels to 64 levels to a dollar this calendar.

A further depreciation in rupee could hurt FPI sentiment.

"We continue to expect Governor Rajan to defend Rs 65/dollar to anchor rupee expectations at Rs 60-65/USD. Although the MoF has spoken in favor of a weaker INR, there is not much evidence that depreciation supports exports in the short run. At the same time, depreciation can reinvigorate inflationary pressures, especially given the rebound in oil prices, and discourage FII inflows that are more often unhedged than hedged," said Bank of America Merrill Lynch in a note.