Indian markets resilient as domestic investors counter FPI sell-off

India's financial markets are shifting to domestic control, with SIPs shielding the economy from FPI selling. HDFC Securities' expert expects a sideways Nifty, rules out RBI rate cuts, and advises staggered investment before a post-Diwali rally.

India's financial markets are structurally transitioning from foreign dominance into rock-solid domestic hands, successfully shielding the local economy from severe downside risks despite a prolonged three-year selling streak by Foreign Portfolio Investors (FPIs).

Decoding the FPI Exodus

Speaking to ANI in Mumbai on Thursday, Unmesh Sharma, Senior Executive Vice President at HDFC Securities, broke down the mechanics behind the multi-year foreign capital exodus, tracking it back to global asset allocation and recent geopolitical skirmishes. "Look, you have to look into the reasons in the last three years why FPIs have been selling India--the first part was actually switching into other markets because some only markets, like Korea and China, were offering better value," Sharma stated. He added that while liquidity is fully fungible global capital, recent wars triggered a broad "risk-off globally on all risk assets" across emerging markets. However, Sharma noted that selective buying persists where earnings visibility exists, and once adjusted against booming primary market inflows, the net outflow is much smaller than perceived.

The Rise of the Domestic Investor

Addressing long-term Foreign Direct Investment (FDI), he explained that "FDI is higher for fixed asset technology" and will spike heavily as structural investments scale up across India's power, steel, and manufacturing sectors. This structural resilience is heavily driven by a fundamental cultural shift in domestic retail savings. Since 2016, a massive wallet share of Indian domestic wealth has moved systematically into equities. "If you look at SIP, it has singularly been the largest driver for driving investor habit to ensure that capital comes into the markets," Sharma emphasised, noting that regular monthly systematic investment plans (SIPs) have turned investing into an unbreakable habit.

A 'Mature' Investor Base

Even with muted retail equity performance over the last two years, Sharma remains fully confident that advisors have successfully educated investors to stay long-term positive on corporate India. "Right now there seems to be a lot of maturity in the Indian investor that they are actually motoring through the period to be able to do that," he observed, ruling out any severe risk of domestic retail capital falling off a cliff over the next 6 to 12 months.

Global Diversification and Reversing Brain Drain

Concurrently, wealthy Indian investors are aggressively utilising global asset diversification as a risk-mitigation tool to hedge against local currency risk, given the historical 4 per cent compound annual depreciation of the Rupee. Sharma clarified that this global footprint is a strategic portfolio decision for affluent global citizens, rather than investors "voting with their feet" out of local economic anxiety. This global integration also highlights a canny turnaround in the nation's historical "brain drain" patterns. While advanced high-level scientific research still occurs overseas, Sharma expressed strong encouragement over the vast domestic scope available post-1991 for STEM and finance professionals to thrive directly inside India.

Monetary Policy and Macro Pressures

Turning to monetary policy, macro pressures, and the Reserve Bank of India's (RBI) upcoming moves, Sharma struck a hawkish note. With the US Federal Reserve's rate-cut path remaining highly sticky and domestic inflation expectations for the year drifting comfortably above 5 per cent due to unresolved food and monsoon data, local rate cuts are completely off the table. "Do I see the probability of a rate cut? The answer is probably not... not expecting a rate cut, expecting the next move to be a rate hike," he cautioned.

No Structural Emergency

Despite these macroeconomic pressures, including volatile crude oil and LNG supply disruptions, Sharma fiercely dismissed any narrative of an impending structural emergency. He reiterated that India has consistently used historical shocks, like the 2013 currency crisis, to structurally reform bank balances and eradicate toxic credit.

Market Outlook and Investment Strategy

Looking ahead, Sharma expects the immediate next quarter to remain quiet as ongoing corporate earnings adjustments and macro shocks filter through the pipeline, targeting a full-year aggregate growth rate of 10 to 12 per cent. In the near term, he expects the Nifty to comfortably move sideways, consolidating tightly within a healthy range of 23,000 to 25,000. For investors sitting on liquid cash, Sharma strongly advised against going "all in" immediately, advocating instead for a staggered 6-to-12-month systematic transfer model to steadily acquire assets at attractive, once-in-a-cycle valuations. As macro overhangs clear out by the second half of the year, fresh capital allocations into future financial cycles will likely stabilise the equity markets, paving the way for a decisive, post-Diwali rally to reclaim the previous record highs before the calendar year wraps up. (ANI)

(Except for the headline, this story has not been edited by Asianet Newsable English staff and is published from a syndicated feed.)