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FII: History tells us that FII has been net sellers in just four calendar years since 2003


“When raised sneeze, the rest of the world catches a cold” is a popular and heavily used phrase in the investment world and reflects the dominant role America plays in the global economy and investment portfolio run.

The original phrase was “When Paris sneezes, Europe catches a cold.” And was penned by the Austrian politician Klemens von Metternich (1773-1859) in the time of Napoleon.

In the last couple of years, any reference to a rate hike in the US has led to a short-term inventory build-up. market of many countries including India, and thus the acceptance of the above phrase to the snubs of the Fed.

These words and the short-lived market reaction as the flow determines the speed and direction of the market has led to the widespread perception among many Indian investors that foreigners are smart when they dominate. buying and selling over the years.

Some investors blindly follow what foreigners do to decide their own approach to the market. While the perception may be that expats are smart, the reality is that during the years when foreigners were selling, domestic investors bought and made high profits.

Foreigners have been net sellers in just four calendar years since 2003. As the table below shows, one- and two-year futures returns show that expats tend to miss out on future profits when they sold out.

There could be many reasons for this – one could be because foreigners are forced to sell for reasons not really linked to India, for example during the global financial crisis. demand, the Indian economy is not severely affected as it has no significant impact. produce exports, but foreigners have sold off due to other pressures from their domestic market.

They may have sold because they have an alternative to India or because they don’t understand India, or they may be facing buyback pressure from their customers.

Finally, the Indian economy recovered well, and stock market profits in the following years are good and domestic investors who invested in 2008 benefited.

If history is any indication, it is very likely that Foreigners selling this year are likely to miss the opportunity – even if domestic investors continue to invest and potentially make money in the future. future.

As the table shows for CY22, foreign investors sold as much as $22 billion while domestic investors invested $33 billion through mutual funds and insurance companies.

Strong domestic capital inflow is one of the main reasons for the resilience of Indian stocks in 2022 despite record selling by foreign investors.

Indian households have yet to make significant investments in equities and its growing share will provide a buffer to absorb volatility generated by foreign flows.

Another factor is that the developed world is struggling with inflation and interest rates not seen since 2007. Indian companies and markets have witnessed and lived with high interest rates and inflation.

The RBI raised rates to 190 bps both bringing repo rates and bond yields to normalized long-term averages.

Hence, despite the interest rate hike and uncertainty, Indian consumer sentiment is improving as the economic recovery is expanding as indicated by a survey conducted by CMIE (Center for Monitoring and Controlling). India Economic Survey) and RBI. Employment characteristics are also changing as workers move out of agriculture to higher-paying jobs.

All of this means that the company’s earnings numbers for the coming years could continue to be good.

In real terms, the Indian economy will continue to grow above 6% per year over the long term, as it has for the past 42 years.

This growth will create investment avenues and the opportunity to generate reasonable, long-term returns.

Short-term profitability can be a function of trends in corporate margins, holiday sales, any capacity expansion plans announced by the private sector, and inflows from investors. .

The economy is on a natural recovery and unless there is a need for cash, it may be prudent to continue investing.

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