Your Money: India remains a favourite with global investors

Indian equities have seen $1.6bn of net selling by foreign investors in April.

By Sorbh Gupta

The S&P BSE Sensex declined by 1.45% on a total return basis in the month of April 2021. Equity markets have shown remarkable resilience despite the lockdown in several states. On a trailing 12-month (TTM) basis, the index has returned 46.26%.

A favourable base of April-May 2020 is reflected in the TTM return. The S&P BSE Sensex performance was worse than developed market indices such as S&P 500 and Dow Jones Industrial Average which appreciated by 5.2% and 2.7%, respectively during the month. A better vaccine proliferation in the US is resulting in more confidence in its economic recovery which is getting reflected in US equity markets.

Last month the broader market did better than the Sensex. The S&P BSE Midcap Index appreciated by 0.69% and S&P BSE Small-cap Index rose by 4.97%. Healthcare and metals were the winning sectors. Resurgence of Covid-19 has brought the focus back on healthcare whereas metals have reacted positively to the up move in global commodity prices. Capital goods and real estate stocks underperformed, as state-level lockdowns made investors nervous about its impact on near-term business prospects.

Foreign flows have come to a pause
Indian equities have seen $1.6bn of net selling by foreign investors in April. This is the first time after September 2020 that FPIs have turned negative every month. On a YTD basis, FPI inflows stand at $5.5 bn. DIIs have been buyers in the month of April. India’s economic recovery can face near-term headwinds due to the Covid-19 second wave and ensuing lockdowns, this might result in short-term FII hedge funds pulling out capital from Indian markets. However, in the medium and long term, India’s nominal GDP growth will look better than the western world. This makes it a sought-after destination for yield and growth-seeking long-term global investors.

Equity markets are resilient
The resurgence of Covid-19 and ensuing lockdown on economic activity gives a sense of déjà vu. The difference this time being equity markets have shown remarkable resilience. The lockdowns are less stringent and more localised this time; corporate balance-sheets are better and the focus has been on debt reduction and liquidity. The last one year has been all about cost control and business continuity for corporate India. Private banks and NBFCs have raised capital and are best capitalised in the last 10 years. As global recovery is intact, export companies and commodity producers are comfortably placed. We recommend long-term investors stay put and use a staggered approach to invest towards their equity allocation.

The writer is fund manager, Equity, Quantum Mutual Fund