Since the beginning of the year, India's benchmark stock indices (Nifty and Sensex) have dropped a shade over 3 per cent. On the other hand Chinese indices are up 20.8 per cent, Taiwan up 9.5 per cent, Japan up 11 per cent and South Korea up 11 per cent.
Just over two months back, the Sensex rallied to a historic high of 30,000 points. Analysts scaled their Sensex targets to 32,000 and some even 35,000 points by Dec 2015. At the moment these targets look overly exaggerated. Foreign funds are just selling in the Indian markets
India is seeing a constant fund outflows. In fact, foreign funds have already sold shares worth Rs 9,000 crores in the last few sessions and there are worries that they will sell more.
Why are foreign portfolio investors selling Indian markets?
The Minimum Alternate Tax (MAT) issue has played on the minds of investors. Though MAT was scrapped by Finance Minister Arun Jaitley in the recent Budget, the demands for the previous years have to be paid. This has been contested by FPIs and some of the cases are presently in Court. This has been viewed as aggressive tax regime, despite the government's friendly attitude. Foreign portfolio investors unhappy with MAT have pressed sales.
Corporate results have also not been too impressive. One year after the Narendra Modi government a lot of investors had expected corporates to show robust results. That has not happened and corporates continue to see poor margins, revenue growth constraints.
As we write poor data continues with the services sector showing tepid growth. There is not a single positive factor at the moment. Crude prices have risen to their highest levels in 2015, once again raising the prospects of higher retail fuel prices and hence inflation. This may prompt RBI to hold interest rates steady. All these factors have played on the minds of FPIs who are selling in the Indian markets.
Markets were also over priced and clearly so. Select mid caps were quoting at p/e multiples in the range of 50-60 and stocks from the pharma sector were having ridiculous multiples. There are also worries of a poor monsoon and the unseasonal rain wrecking havoc in rural demand for products.
There are worries that interest rates in the US will rise soon and this has led to foreign funds selling in the Indian markets.
Analysts say there maybe some more selling in the next few months. It's highly possible that we may see another 5 per cent downside in the Indian markets.