NG Missile Vessels
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Unimpressed with the post-Covid growth story of China, foreign institutional investors (FIIs) have been jumping ships resulting in a $9 billion catalyst to Indian stocks in the first quarter of FY24.
With daily average buying totalling around Rs 1,400 crore, foreigners have not only been the biggest buyers of Indian equities so far this financial year but have also taken over as Dalal Street's Mr Consistent. NSDL records show that FIIs have been net sellers only on 8 days out of 51 trading sessions in FY24.
On the other hand, domestic institutional investors (DIIs) have bought stocks only worth about Rs 6,500 crore during the period against FII buying of about Rs 72,000 crore in INR terms.
With Nifty rallying 8.5% in June quarter to near all-time peak levels, insiders say China's loss is India's gain as Chinese economic rebound seen earlier this year lost momentum in the second quarter.
"The post-lockdown recovery in China turned out to be a temporary one and the resultant equity flows to Chinese markets at the beginning of the year have also normalised," said Rahul Singh, CIO of Tata Mutual Fund.
India, according to him, is in a sweet spot now because if growth remains cyclically depressed in developed economies and structurally subdued in China, India's growth premium can sustain.
"Nifty50 premium to emerging markets has expanded from 45-50% to the 60-70% range. Moreover, there is very little on the horizon which can challenge this narrative with crude/energy prices and any shocks in domestic politics being the key risks," he said.
Foreign brokerage firm Jefferies' Chris Wood had last week said global investors, as opposed to dedicated emerging market investors, do not want to invest in China stocks.
"India remains greed & fear’s favorite stock market on a ten-year view which is why global investors, and not just Asian and emerging market specialists, should be invested in it, most particularly given the undeniable question marks surrounding the long-term direction of China," he wrote in his weekly newsletter.
Refinitiv data shows foreign investors sold $1.71 billion worth of mainland shares in China during May after selling $659 million in April.
Not just India, markets in Japan and South Korea have also benefited from the fizzling out of the China re-opening theme. Japan's Nikkei is up 30% this calendar year and South Korea's Kospi 17.5%.
Despite the recent recovery in Chinese shares on rate cut by its central bank, analysts think that there is a high probability that FII inflows will sustain on Dalal Street in the near term.
"The primary reason is that whilst developed economies have been debating on the impending recession and how long it will last, India’s GDP growth is touching 6%. This in itself shows our resilience as an economy," said Umesh Kumar Mehta, CIO, SAMCO Mutual Fund.
The March quarter earnings season has also left more bulls than bears on Dalal Street.
Global brokerage firm Nomura has given a target of 19,872 for Nifty by March-end while Goldman Sachs sees the index at 20,000.
Nifty earnings growth are projected by consensus to increase by 20% YoY in FY24, which, Jefferies said, appears high on a head-line basis
"For FY24, partly on a higher base in financials, domestic earnings growth is expected to slow down to 19%. Meanwhile, foreign related earnings should rise 21% YoY, with a rebound in metals, oil and gas being key drivers," it said.
Nifty is now trading on a 12-month forward P/E of 19x, which is above the upper end of one standard deviation band on a long-term basis.
Will China bounce back?
Even as China’s economy is burdened with structural challenges and geopolitical headwinds, and that its growth will likely slow over the medium term, analysts say it will remain an economic juggernaut by size, contributing over one-quarter of global growth.
HSBC Global Private Banking has identified China's recovery opportunities as one of the top four investment themes.
"Taking into account that the most significant incremental impact from China’s reopening has already played out in the past six months, we have repositioned our theme on Asia’s Reopening Winners into a new High Conviction Theme on China’s Recovery Opportunities," said James Cheo of HSBC.
It has maintained an overweight position on mainland China, Hong Kong, India and Indonesia within Asia ex-Japan equities. In the second half of 2023, HSBC believes that Asia will deliver strong market performance and cyclical momentum
Foreign investors ditch China to start $9 billion stock buying frenzy in India
Foreign institutional investors (FIIs) are investing heavily in Indian stocks in the first quarter of FY24, with daily average buying totaling around Rs 1,400 crore. Domestic institutional investors (DIIs) have bought stocks worth only about Rs 6,500 crore in the same period. Experts suggest...
