Foreign Portfolio Investors (FPIs) have net sold a staggering Rs 12,400 crores in the Indian market in July and more aggressively since the Union Budget 2019-20. The selling remains unabated raising worries that if there is more selling it may push indices even lower.
Surcharge on the super rich, the prime reason for selling
Finance Minister Nirmala Sitharaman had proposed to increase surcharge on the rich, which will also impact some Foreign Portfolio Investors (FPIs) structured as trusts. This has led to some massive selling by Foreign Portfolio Investors as they will now have to pay higher tax. The fall this time round, has also been led by some heavyweight stocks, including HDFC and HDFC Bank. Foreign ownership in some of these stocks is extremely high and there could have been some profit booking at every rise.
The fall in the markets has come despite robust global cues, where US markets have hit historic highs.
7% loss from peak levels
Benchmark indices have lost nearly seven per cent from peak levels. The Nifty is down to 11,250 points from a peak level that was above 12,000 points. Further, selling pressure in the markets cannot be ruled out, particularly in some of the heavyweight stocks.
What is most interesting is that domestic institutions have net bought in the Indian markets to the tune of nearly Rs 13,000 crores. It remains to be seen, how much more money domestic institutions can pump, as many maybe sitting on less cash. It would not be a surprise to see a further downside in the markets.
Economic growth seems to be stuttering, with key indicators, including auto sales, showing a slowdown. GDP growth rates have been lowered by a host of analysts and corporate results have not matched expectations. The International Monetary Fund has cut its projection for India's economic growth by 0.3 percentage point to 7 per cent for 2019-20 due to subdued domestic demand. For the next financial year, the projection was also cut by 0.3 percentage points to 7.2 per cent.
Most analysts have cut their ratings and this is certainly not good news. NBFC results that have been announced so far, have been a shocker, particularly Mahindra Finance.
Mutual fund flows may dwindle
If the markets remain lower for a prolonged period of time, we may see mutual fund inflows by way of Systematic Investment Plans (SIPs) dwindle. If this happens, there could be a serious pressure on the markets, given that SIP inflows is what has kept the market going. Support from a big institution like LIC would also remain crucial going forward.