Equity may shine even as FII selling is slowing: RBL research head

Through its footprint extending to over 500 cities, the company offers broking services in equity, currency and commodity (via subsidiary Religare Commodities Ltd) as well as depository participant services. Hitesh Agrawal, EVP & Head – Retail Research, RBL, reflects on the market and shares insights with DT Next relevant to trading and investing. 

We believe the selling by Foreign Institutional Investors (FIIs) is only a temporary stance taken by them in wake of the various challenges and uncertainties on the horizon for the Indian economy. However, we believe over the medium-to-longterm, Indian equities stand best placed to outperform its peers. This is supported by the fact that the Indian consumption theme is here to stay for a long time to come and it is because of this that the Indian economy has been the fastest growing among the major economies of the world. Moreover, with the formalisation of savings trend witnessed in the economy, we can expect domestic flows to counter the FII selling to a considerable extent. 

An escalation on the trade war front has the potential to impact global trade and consequently global growth in a meaningful manner, and hence the nervousness across equities as an asset class. 

Upcoming earnings seasons to see macro-data dictating Indian equity market’s movement 

The current market valuation is factoring in a 20%+ growth in corporate earnings in FY19 against the sub-10% growth delivered last fiscal. Thus, increasing traction in corporate earnings is important to sustain the valuations and attract foreign capital back into Indian equities in the near-term. Apart from this, on the macro-data front, factors like inflation and interest rates will be closely watched as strengthening in these not only impacts the spending power of consumers but also affects corporate profitability, both of which is unwelcome news for the stock-market.

HNIs had been big participants in Indian equities over the past 3-4 years, and their presence was particularly significant in the mid-cap and the small-cap segments of the market. However, with these being out of favour in 2018, and real estate showing some life in terms of pricing / rentals, whereas better interest rates are now available on several debt products relative to 2017, HNIs could be just re-allocating a portion of their investments.