Indian Markets Will Be Under Pressure Despite Growth Stimulus

The net buyers of local equities are expected to be domestic mutual funds this September. Although they would not be buying in large size, they are still going to support the Indian equity markets significantly. 

Meanwhile, the Foreign Portfolio Investors (FPIs) have carried forward their selling trend into the third straight month. The domestic investors have so far purchased stocks of worth nearly Rs 324 billion since July 2019 as compared to Rs 300 billion by FPIs. 

The FPIs are expected to continue to exit Indian markets in spite of the latest monetary policies in the European Union and the United States. They have implemented accommodative policies. These are the regions from where FPIs typically invest in the emerging markets. 

Possibly, the latest global developments are holding FPIs back from investing in riskier instruments. Hence, they are in seek of safer havens such as gold and the US Treasury Bonds. Also, the rumours of a recession in the US economy is not helping their cause. 

Also Read: FPIs continue their selling trend despite growth boosters

This August witnessed an FPI outflow of Rs 175 billion from the Indian equity markets as the investors were worried about the slowdown in economic growth, increased surcharge, and the Sino-American trade war. 

August 2019 saw domestic investors utilising most of the bearish market as they bought quality stocks at reasonable prices. They have negated the FPI outflow to some extent and offered some respite to the ailing Indian markets. 

The Indian mutual funds had cash worth Rs 580 billion in July 2019, which is about 5.75% of their equity investments. Also, the Indian insurers have pitched in to support the Indian equity markets along with mutual funds. 

The mutual funds have been supported by constant inflow through systematic investment plans (SIPs). The average inflow through SIPs is Rs 80 billion over the last three months while the inflow from lump sum investments has not been significant. 

The investments from the domestic mutual funds have been primarily in the large-cap stocks as they are considered relatively safer than the mid and small-cap stocks. Hence, the growth and expansion of smaller companies have been subdued. 

The Indian listed companies are waiting for the growth stimulus to weigh in so that they get some investment shortly. The auto sector is badly hit due to the latest developments and has caused job loss to about 3.4 lakh people in the industry.