As far as their holding in Indian stocks is concerned, Foreign Institutional Investors (FIIs) are selling. Analysis by Motilal Oswal Financial Services Ltd shows that April was the seventh consecutive month of being a net seller with outflows of $3.8 billion. Risk-off globally, leading to increased FII outflows from India, the domestic brokerage house said in a report on May 2.
While domestic institutional investors are backing Indian stocks, barring a sharp decline, upcoming central bank meetings could result in more FIIs selling Indian stocks. According to a Motilal Oswal report, domestic inflows into the Indian market continued for the 14th consecutive month at $3.1 billion in April.
The important meeting of the US Federal Reserve ends on May 4. Given US retail inflation at a four-decade high amid concerns of slowing growth, it is widely expected to rise 50 basis points. One basis point is one hundredth of a percentile.
“Early signs are now pointing to 2Q GDP in the range of 2.5-3.0%, combined with increased inflationary pressures, a 50bp rate hike next week from the Federal Reserve and a minimum in June and July. I should ensure another 50bp.” ING’s chief international economist James Knightley said in a note on April 29. In addition, analysts at Nomura Inc expect a rate hike by Bank of England by 25 bps. Interestingly, on Tuesday, the Reserve Bank of Australia raised interest rates by 25 bps over and above the 15 bps predicted by many economists.
Note that interest rate increases make emerging markets (EMs) a less attractive investment option for foreign investors. Furthermore, the impact of the Russia-Ukraine crisis on emerging market economies is expected to be more severe than on their developed market counterparts, as many EMs are net importers of many commodities.
In the case of India, the International Monetary Fund and the World Bank recently cut their economic forecasts for the financial year 2023. These institutions have cited high energy and food prices due to the Russia-Ukraine conflict, which will affect the country’s economic condition. Growth.
Against this backdrop, the costly valuations of the Indian equity market could be another slowdown for foreign investors. “In price-to-earnings terms, MSCI India is trading at a 99% premium to MSCI EM, which is over its historical average of 60%,” said Motilal Oswal’s report.