FIIs turned net buyers in equities in July after 9 months; what’s next for investors?

July turned out to be the best month for the Indian equity market this year so far. The benchmark equity index BSE Sensex climbed over 8 per cent to 57,570 during the month. Positive global cues and inflows by foreign institutional investors (FIIs) aided market sentiment. So, will the ongoing momentum continue on Dalal Street and which sectors and stocks may outperform going ahead? To discuss the same, Business Today caught up with Nitasha Shankar of YES Securities, to understand what lies ahead for the market.

BT: With an inflow of around Rs 4,989 crore, FIIs turned net buyers in the equity market in July after nine months of outflows. What will drive FII inflows going ahead?

Nitasha Shankar: We believe that in the long term, FII flows will return to India given higher earnings yield, better earnings visibility and the long-term domestic growth story.

BT: How do you see the next few quarters for D-Street amid rising interest rates?

Nitasha Shankar: The times ahead are going to be challenging for the world. Especially, for the young folk who have largely experienced a falling or low-interest rate regime and low inflation rates. Money making had become easy with a lot of low-cost liquidity flushing around. Central banks, which were touted as ‘slaves to the market’ chose to keep the interest rates low enough, as long as inflation levels were in reach of their targets. 

However, with the pandemic hitting the world, the vulnerability of the global supply chain come to the forefront and indicated how fragile the system seems to be. The geopolitical risks cropped up to complicate matters even more. However, with the CPI in the US and Europe rising to levels over 8 per cent, it has compelled their respective central banks to prioritise tackling the same. Whether it will take a year or two or five (or possibly longer) to bring inflation levels back to their targeted figures of 2 per cent is anyone’s guess. But it surely does mean that the cheap money era is behind us.

BT: Where do you see buying opportunities in this market?

Nitasha Shankar: In our opinion, as the world adjusts to this new phase, the high discount rates would bring about some sanity in expectations and as a result - valuations. If this does indeed turn out to be the case, it would be a much-required “healthy” correction. No doubt, global slowdown and higher inflation would impact select sectors and companies as demand would generally take a hit. But while the lower ask rates do adjust for the expected slowdown, where we draw comfort is from the fact that India continues to be amongst the largest growing economies globally.

BT: Which factors do you think will take the market higher now?

Nitasha Shankar: We draw comfort from the fact that corporate health is healthy. We continue to see multiple megatrends playing out, which we believe are here to stay. Some key one being India’s rising share of the global supply chain (government schemes such as PLI add fuel to the fire), rising financialisation, rising digitisation, and formalisation of economy. The capex cycle, which has started by the public sector, is yet to pay out for the private sector. But as and when utilisation levels do rise, this is another trend that will continue. Bottoming out of the housing sector is also expected to have its multiplier effect on the economy.

BT: How investors can create wealth in the long-term?

Nitasha Shankar: We reckon investors to keep their faith in the Indian economy and embrace this volatility. This is the time to revisit the basics and have confidence in the long-term potential of India.

As they say, building long-term wealth is simple but not easy. The latter is being tested out right now. But for the former, market participants should keep it simple. Stick to strong market leaders with strong growth potential.