FPIs find markets overvalued

Mumbai: Foreign portfolio investors (FPI) have significantly pared down their investments in the domestic equity markets over the past two months as stretched valuations and global factors such as geo-political tensions, Brexit negotiations and election in the Eurozone region forced some of the risk averse global investors to stay on the sidelines.

According to the latest data available with the National Securities Depositories Ltd (NSDL), the net investment made by overseas investors stood at just Rs 2,394 crore in April after pumping in a record Rs 30,906 crore in the previous month. Their investments have further dropped to Rs 290 crore in May till date.

“Equity valuations are not looking attractive as before and global investors are finding it difficult to find good picks at the current levels of valuations,” noted U.R.Bhat, MD, Dalton Capital Advisors.

“Global factors are also not that encouraging. The aggressive posturing by North Korea has impacted investors sentiments towards the entire emerging markets. Moreover, the uncertainty over the terms of agreement for Britain’s exit from the European Union, run up to the French presidential election coupled with lack of any meaningful recovery in corporate earnings growth also had an adverse impact on foreign investors sentiments,” he added.    

Both the domestic benchmark equity indices are hovering around their lifetime highs. The Nifty last closed at 9,400.90 after touching its lifetime high of 9,450.65. On the other hand, the Sensex closed at 30,188.15 after hitting a record high of 30,366.43.  

While stating that the markets has started to believe in a growth turnaround, but it is far from pricing in a multi-year growth cycle, analysts at Morgan Stanley however said its proprietary sentiment indicators are pointing to a tactical correction in the markets.

“Our proprietary sentiment indicator, breadth indicator and flows are looking heady. Return correlations with global equities remain high. If a global correction ensues, the index could easily give up 5-7 per cent,” said Ridham Desai and Sheela Rathi, equity strategists at Morgan Stanley in their latest India strategy report.