Investor confidence will gradually return: Kaushal Shah

Bombay : With July proving to be the best month for domestic stock markets in 2022, expectations are high around the direction of the market in the short to medium term. In an interview, Kaushal Shah, Executive Director and Head of Capital Markets, Kotak Investment Banking, outlined the key factors shaping investor sentiment. Experts edited:

Foreign Institutional Investors (FIIs) have long been regular sellers of Indian stocks. When do you see the tide turn?

FIIs have sold $33 billion since October 2021, including $6.3 billion in June. However, the rate of FII outflows has moderated over the past four weeks and, in fact, the week of July 18 saw FIIs become net buyers for $1.2 billion. FIIs need stability and certainty to take a directional view. Over the past nine months, markets have seen a steady stream of negative news, resulting in significant portfolio loss for investors and high levels of volatility.

While the recession is a concern, it looks like we are nearing the end of the shocks and markets are now focusing primarily on fundamentals rather than technicals. With that, we could see investor confidence gradually returning. Near-term activity will likely be boosted by follow-on trades. Given the headwinds, IPOs are currently selective and limited to scaled and differentiated stories. Additionally, while valuing companies, investors build a price cushion to manage uncertainty and volatility. Markets will provide select launch windows, such as late April and early May 2022, where five major IPOs were completed.

Is India better off than its emerging market (EM) counterparts?

India has outperformed global indices and last month Indian Nifty gained 6.6% against the MSCI EM, generating negative returns of 1.5%. This is possible given the strength of the internal flows. DIIs (Domestic Institutional Investors) have injected a record $40 billion since October 2021 thanks to robust and consistent SIP (Systematic Investment Plan) flows – June quarter flows averaged $1.5 billion dollars, above the FY22 average of $1.3 billion.

In addition, retail and HNI (wealthy) investors contributed significantly to domestic flows.

India has shown resilience with a stable political scenario and strong economic and macroeconomic factors; India is expected to register one of the highest GDP (gross domestic product) growth for 2022 in the world.

There is some risk aversion among foreign investors vis-à-vis China. Do you expect India to benefit?

China is a big market for investors and will always be considered. China will find jolts in flows due to political risk or other concerns like the current real estate stress; however, investors will be pricing on a risk-adjusted basis – if they believe the market correction accounts for political risk, they will be open to investing. However, FII flows to India during this period were independent of the Chinese correction and driven more by domestic indicators and global factors.

The silver lining behind a likely recession in the West has been softening input costs across all sectors. Do you think domestic demand will hold up to take advantage of that?

There are early indicators pointing to a recession in the West, but we will have to ensure that it is real. However, Indian companies will certainly benefit from lower commodity prices and hence lower input costs. While there is a potential impact on demand due to recessionary pressures, it could be sector-specific and could be offset to some extent by strong domestic demand and consumption history.

The 75 basis point hike by the US Fed is in line with expectations. Can there be any surprises from the Reserve Bank of India at the next policy meeting?

Regulators around the world are focused on managing inflation. Markets are expecting RBI to hike rates by 35-50 basis points at the next policy meeting, which is no surprise. India is in a much better position when it comes to inflation. While India’s CPI (Consumer Price Index) has been in a range for the past two years (current levels of 7.0% vs. 6.2% as of June 30, 2020), most developed economies recorded record levels of inflation and emerging economies are experiencing multiple increases. of the CPI over the same period.

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