nifty: Nifty’s resilience amid ferocious exit by FIIs: Should you rejoice or worry?

There is no dearth of FII selling in the Indian market. For some time the daily sales numbers have exceeded a billion dollars. In this calendar year alone (January to March), the tally has crossed the trillion (Rs) mark by a wide margin. FIIs have pulled out a staggering amount of over $20 billion (net sales) since October last year.

To put it in context, during the fall in the middle of the pandemic in March 2020, it was much less than $10 billion. Looking back, even during the global financial crisis in 2008, this number did not cross $15 billion. What is happening now is more of an exit as there is much less than the previous selloff. This is a mass exodus. Investors should have been hit hard by such a high exodus, if one goes from the bad fall in earlier occasions (both during GFC in 2008 and in March 2020) with very little FII sell-off. But this time investors have got a setback, but have not given up completely.

Sensex and Nifty have escaped the fear of FIIs with minor losses. Year over year, they’re down a little over 1.5% this calendar year, but not by much. Same is the case with broader markets. Small and mid-cap indices have exited without fear of any serious mark. These have declined by 5.63% and 4.73%, respectively. All these numbers are till March 25.

The resilience that the Indian market has displayed has seriously surprised even the most seasoned investors. Some of them are really surprised. If someone had told them at the beginning of the year that oil was going to swoop to the $130 level amid a raging war in Ukraine and that FIIs would collectively exit emerging markets on the Fed’s tighter and taper cycle, their The expected rupee will pass and the shares have been largely devastated in India. But here we are now with hardly bounce in rupee and stock is surviving with less loss.

There are two ways to look at this flexibility. One view is that domestic investors, both retail (through the SIP book) and institutions, which are playing a key role in this resilience, are sold on India’s medium to long term prospects. For them, the market is indicating an economic and earnings boom in the coming years. They expect the corporate growth and profit cycle to be staggeringly surprising on reform-focused policy stability, China+1 trigger, super digitization upcycle, PLI-based manufacturing scale-up, etc. These investors belong to the fastest camp. Bearish investors, on the other hand, believe that this resilience could offset a much larger downside if domestic investors at some point give up their support on relentless FII sell-offs, amid growing fears that commodity inflation will slow down. could slowly seep into a structural impasse. According to him, it is better to wait on the shore. In which direction the wind will blow, only time will tell.

Now it is important to understand the historical perspective. Otherwise, short-term uncertainties will be clouded and will be mired in inaction. It’s important to remember that no macro risk in the past had a more lasting impact than a few quarters. If one goes back and looks at the previous macro challenges in previous cycles, each macro event has been a clear buying opportunity. Even in the worst global financial crisis of 2008, where everything was collapsing like nine pins, this event lasted for no more than three quarters for the market.

The entire FII selling story can be viewed from another angle as well. That is, what will happen to the market when most of the money exited by the FII will come back after normal returns, which it usually does? Even if half the penny ($10 billion) is returned in a hurry, one can imagine where this could take the market, especially when both local and global investors are on the same buy side. be.

Depending on their investment horizon, investors should capitalize on this consolidation to build a structurally strong portfolio on a bottom-up basis to achieve exceptional returns over time. What’s more, because the market seems to have more or less exempted the taper cycle and interest rate hikes from the Fed. What has still not been discounted is how far the risks can go from geopolitics. Can it become a widespread conflict or will it subside? What happens on that front will determine how the market will trend in the short term.

(Aruna Giri is the Founder CEO and Fund Manager, N Trustline Holdings Pvt Ltd. Views are personal)

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