Markets likely to witness profit booking from FPIs

The daily average turnover (DAT) for July from FPIs stood at $50.1 million.

Foreign Portfolio Investors (FPIs) have remained buyers of Indian equities thanks to the rush of global liquidity. From May till date, FPIs poured in $6.3 billion in total in equities. According to experts, equity markets should brace for profit taking as the markets reach peak valuations.

In July itself NSDL data shows that FPI inflow stood at $1.15 billion, and the first session of August saw the Indian equity markets attract flows worth $1 billion from FPIs after promoters sold stake in Bandhan Bank through a block deal. In May and June, Indian markets attracted flows worth $1.7 billion and $2.4 billion, according to NSDL. During the same time, the benchmarks have risen by 43.1% from March 23. This had led to the stock markets trading at expensive price earning (PE) multiples.

Currently, the Nifty trades at a one year forward PE of 20.8 times and Sensex at 21.4 times one year forward PE.

According to Rusmik Oza, executive vice president – head of fundamental research, Kotak Securities, it is logical for FPIs to take profits at the current valuations and that there are instances of profit taking by FPIs already underway.

“Last week itself they had turned cautious on the Indian markets and their flows remained lesser. In the August trading sessions, we have seen strong flows mainly because of the Bandhan Bank block deal. Going ahead, the new results that are going to be announced will be from companies that are into manufacturing and other affected businesses, which could lead to some kind of correction in markets and profit taking by FPIs. It is, however, hard to tell whether there will be outflows,” he said.

The daily average turnover (DAT) for July from FPIs stood at $50.1 million. However, in the last week of July, the DAT was at $11.1 million.

Additionally, a delay in the Covid-19 vaccine being released could also lead to the FPIs increasing the intensity of booking profits.

G Chokkalingam, chief investment officer, Equinomics Research and Advisory, said, “Yes, if the vaccine is delayed to 2021 then significant profit booking by FIIs can happen in the remaining months of 2020. It is most unlikely that we will attract any significant inflows from FPIs in the second half of 2020 due to the deflationary conditions and lack of clarity on which month the vaccine comes.”

Besides Bandhan Bank, which saw promoters sell their stake through a block deal and Axis Bank whose qualified institutional placement (QIP) of shares is underway, many marquee names have been tapping the bourses to raise money.

Large blue-chip companies such as Hindustan Unilever, Kotak Mahindra Bank, Reliance Industries, Bharti Airtel, and HDFC Life have hit the capital markets to raise funds. More such companies, especially financial institutions like HDFC Bank and ICICI Bank, are considering raising funds from the capital markets. The flows have been largely skewed towards these companies, with FPI flows standing at $1 billion after Bandhan Bank’s block deal.

UR Bhat, director, Dalton Capital Advisors (India), said, “Market participants tend to gravitate more towards the resilient blue-chip large-cap companies at a time when valuations are somewhat stretched and it is just liquidity that is driving markets. In this case, participants feel a bit safer by investing in stocks that are likely to fall the least, so that they do not end up losing a lot of capital when the sell-off happens.”