Foreign Institutional Investors (FIIs) have significantly reduced their selling activities in Indian equity markets, according to Samir Arora, founder of Helios Capital. Speaking at the CNBC-TV18 Global Leadership Summit on November 14, Arora addressed the causes behind the massive sell-off and shared his outlook for the Indian stock market.
Arora’s insights focused on corporate earnings, market performance, and the global investment landscape, bringing clarity to the reasons behind FIIs’ behavior and what it means for investors moving forward.
FIIs Selling in Indian Markets: Current Status
Arora noted that the recent wave of FII selling, which resulted in a staggering ₹1.2 lakh crore outflow from Indian equities, appears to be nearing its end. “I think they [FIIs] are mostly done,” he stated, suggesting the intense selling pressure seen in recent months may subside soon.
Contrary to popular belief, Arora highlighted that FIIs were not divesting from India to allocate funds to China. Instead, much of the capital was redirected to the US market, reflecting a preference for higher returns amid weak earnings in Indian corporations.
Why Are FIIs Selling Indian Stocks?
The primary factor driving FII sell-offs, according to Arora, is the “pathetic” performance of corporate earnings in India. Weak earnings, he argued, make Indian equities less appealing compared to alternatives like US stocks.
Arora dismissed the notion that global investors are reallocating funds to China, noting that concerns over geopolitical tensions involving China and the US likely deter significant investments in the Chinese market.
FIIs’ Limited Exposure to India
Arora emphasized that global institutional investors typically maintain minimal exposure to India, often averaging around 1% of their total portfolios. This limited stake, he explained, makes it unlikely for FIIs to significantly reduce their already small allocations to India in favor of US markets, where exposure typically exceeds 60%.
Market Performance: A Mixed Picture
Arora pointed out the subdued returns from Indian markets, particularly the Nifty 50 index, over the past three years. While the NSE 500 index, which encompasses mid-cap and small-cap stocks, performed slightly better, the overall returns remain below historical averages.
However, extending the evaluation period to seven years reveals returns closer to the typical range, with the Nifty delivering 13-14% and the NSE 500 achieving 15-16%. This broader perspective offers a more optimistic view of long-term market performance.
Sectors Facing Pressure
Despite his cautious outlook, Arora highlighted several sectors where he continues to maintain a short position, including consumer goods, select automakers, and micro-lenders. These sectors, he believes, are likely to underperform in the near term due to persistent challenges.
Nevertheless, Arora expressed confidence in the Indian market’s ability to recover, stating, “My theory is that things that are doing badly turn around very fast. And things that are doing well, don’t stop doing well so fast.”
Earnings Outlook and Recovery Timeline
The weak corporate earnings that have plagued Indian markets are unlikely to improve in the next three months, according to Arora. He projected a recovery timeframe of six to nine months, which aligns with his belief that 2024 could bring better returns for investors.
Global Trends and Their Impact on India
Arora also addressed the influence of global trends, including the impact of the newly elected US president on Indian markets. He asserted that while Indian equities may underperform compared to US markets, there is no reason for undue pessimism.
This positive sentiment is rooted in India’s long-term growth potential and its ability to weather global economic shifts.
Key Takeaways for Investors
- FIIs Selling Is Slowing Down: The heavy outflows seen in recent months are likely to taper off, reducing pressure on Indian markets.
- Corporate Earnings Drive Decisions: Weak earnings remain the primary concern for investors and could delay market recovery.
- Focus on Long-Term Growth: Despite short-term challenges, India’s long-term growth story remains intact.
