Since the results of the general elections were announced on May 23, 2019, Foreign Portfolio Investors (FPIs) have net sold a staggering sum of nearly Rs 33,000 crores in shares in the cash market. This number is since May 23rd, the day of the counting for general elections.
If you see the numbers prior to May, Foreign Portfolio Investors bought a staggering sum of Rs 12,749 crores in April, Rs 32,371 crores in March and Rs 13,564 crores in the month of Feb 2019.
|Net FPI number in crores|
|Feb 2019||13564.57 Cr|
|March 2019||32371.43 Cr|
|April 2019||12749.55 Cr|
|May 2019||-2135.85 Cr|
|June 2019||-688.5 Cr|
|July 2019||-16870.13 Cr|
|Aug 2019||-14828.76 Cr|
|Sept, till Sept 17||-6375 Cr|
Economic slowdown the key
A large part of the fall in the markets has to do with FPI selling, which has largely to do with the economic slowdown. Auto sales numbers have been disastrous, which is likely to push unemployment further. The auto sector along with the auto ancillary units, is one of the biggest employers in the country. What's worse is that consumption has taken a big hit, with items from hair oil to biscuits taking a knock. What's really bad is corporates are losing the pricing power and margins have shrunk forcing losses and downsizing.
The liquidity crunch has only added to woes, while the non performing assets issue has aggravated the condition only further. Against this backdrop, it is almost certain that earnings are going to take a knock and if they do, the chances of the stock market reviving is near "zero".
The country also needs a stable set of tax policies. The decision in the Union Budget of 2019-20 of a tax surcharge on the super rich, which automatically applied to select FPIs only compounded the problem of aggressive selling by these institutions. That decision has been withdrawn since, but, stable set of tax policies could do wonders for investments flowing into the stock markets by FPIs.
Global factors not really an issue
Indian stock markets have under performed the global markets by a distance. In fact, global markets are not an issue, as the US Dow Jones and the S&P 500 are at near record highs, while the Nifty has shed a good 10 per cent from record highs of 12,000 points.
There is already immense liquidity in the global financial system, thanks to loose monetary policies from central banks like the ECB. Most emerging and Asian markets too have done alright, while Indian markets are trading marginally in the red for 2019.
Inflows unlikely to come back in a hurry
The markets would continue to depend on mutual funds to push the markets higher or at least stabilize the markets. We are unlikely to see FPI money returns quickly unless earnings recover. For that there would be a need for a serious economic stimulus.
Already, there are reports that we could see some measures for the auto sector including a GST cut. The government would need to take a host of measures, which need to be supplemented by the RBI, through aggressive rate cuts.
The only concern right now is that mutual fund investors should not start losing their patience, with poor returns. If that happens, we might see further downside in the markets.