Since the last 2-3 weeks, FIIs have reduced aggressiveness of selling and have even been buying occasionally. Experts say some India long-only FIIs have been cherry-picking stocks to take advantage of the recent correction in high-quality names. No wonder Sensex has jumped over 1,900 points this week. Domestic institutional investors, who have been supporting the market from a bigger downfall, are now taking a break by booking profits.
Market analysts cite three factors triggering the buying by FIIs:
1) Rate hike expectations
Globally the risk sentiment is now turning around as central banks are expected to go slow on rate hikes, said Deepak Jasani, Head of Retail Research,
Securities. As a result, he said, the FIIs who were sitting on cash piles are now coming back.
Economists, who were earlier fearing a 100 bps rate hike by the US Fed, are now betting on 75 bps at the end of the July 26-27 meeting, according to a poll conducted by Reuters. However, the European Central Bank (ECB) increased rates by 50 basis points on Thursday, double of what was expected.
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2) Macro factors
Jasani said the possibility of a recession in the US has reduced. “If at all there is a recession, it will be a shallow recession,” he said.
Back home, Kranthi Bathini of WealthMills Securities said by and large the Indian macros are looking good structurally and the earnings season has also been decent so far. “Although we can’t say that FIIs have made a comeback fully, the selling has stopped,” he said.
3) Dollar index
The US dollar index has also softened from its multi-year highs as markets reduced the odds of a percentage-point Fed hike this month. A weakening dollar is treated as a good sign for emerging markets like India.
Jasani, however, warns that the risk appetite of FIIs can be very fickle. If the outcome of the US Fed meeting is harsher than what most people expect, then Dalal Street could be back in trouble once again.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)