FPIs turning positive on cooler oil, valuation comfort

Overseas funds have turned net buyers in November so far, investing Rs 5,238 crore in this period — their biggest buying stretch since April. Brokers said the moderation in share valuations after the recent sell-off, a decline in crude prices and stability in the rupee have prompted foreign investors to nibble at some of the battered stocks.

Foreigners have been net buyers in eight of the last 11 sessions so far in November. From April to September, they were sellers of stocks to the tune of Rs 44,800 crore.

“We believe the risk-reward is now turning favorable and the current sell-off presents an opportunity to buy back into Indian equities for 10-15 per cent returns through to June 2019,” said Bharat Iyer, head of India research, JPMorgan. “We expect FY19 estimated earnings to grow at 15 per cent, as the impact of demonetisation and initial teething troubles associated with GST implementation continue to fade. Separately, our macro teams remain constructive on global growth”.


Foreign portfolio investors sold nearly Rs 27,600 crore worth of shares in October alone. The foreign portfolio selling has reset ownership in India versus emerging market peers to seven-year lows.

“Price and sentiment are both attractive and while volatility may persist in the coming weeks, we continue to think it is a good time to engage in stocks, especially in the broad market,” said Ridham Desai, MD, Morgan Stanley India.

“Credit growth is at a five-year high, inflation is benign, the policy response to the liquidity crunch has been significant, oil prices are well off highs, aggregate earnings are inline, domestic flows look solid, valuations look increasingly supportive though not universally in a buy zone, and sentiment indicators are in buy zone,” he added.

After surging 15 per cent since the beginning of the year through August 29, the benchmark Sensex declined 13 per cent within the next two months. In the period, mid-cap index fell 13 per cent and the small-cap index fell 18 per cent. Many smaller shares have fallen 40-60 per cent so far in 2018.

In November, the Sensex has recovered nearly 4 per cent, while mid- and small-cap indices have risen roughly 2 per cent each. After the recent correction, Nifty valuations have fallen to 16.6 times one-year estimated earnings compared to 19.7 times in August.

“Over the last few days, the buying that we have seen or the selling spectrum also largely reflect what is happening in the broader global emerging markets. We are seeing a hope of a pickup in emerging markets after the correction as well as noise bites around a potential USChina trade deal,” said Gautam Chhaochharia, head of India research at UBS. “This will give respite from selling or buying and from an India perspective, correction in oil will also help sentiment.”

Crude price have declined nearly 23 per cent from $86 to $66 per barrel within two months.