After pouring in over Rs 3,000 crore on June 3 when Nifty kissed its all-time high of 12,103, foreign institutional investors (FIIs) have turned net sellers in the current month to the tune of Rs 400 crore, data obtained on June 17 shows.
This slowdown in foreign investment has affected FII-heavy stocks as well. Fifteen stocks in which FIIs hold more than 10 percent stake have corrected 10-30 percent since June 3.
These FII darlings include Zicom Electronic, Jaiprakash Power Ventures, Monnet Ispat, Patel Engineering, Ballarpur Industries, Provogue India, Bombay Rayon and Sakthi Sugar, among others.
Experts feel that this blip in FII flows is temporary and India stands out as an attractive investment destination among other emerging market peers.
“Relative to Asian peers, India is trading at a premium to its historical average valuations, while most emerging market peers are slightly below their mean levels. But, that said, several of these peers, particularly in North Asia have seen deeper earnings cuts this year as they are more directly exposed to global trade war issues than India,” Abhiram Eleswarapu, Head of India Equity Research at BNP Paribas told Moneycontrol.
Eleswarapu further added that India still offers reasonable growth compared to its peers, and possibly a wider range of stocks for investors to choose.
Table: 15 FII-heavy stocks that have tumbled over 10 percent Since June 3.
Most of the abovementioned stocks that have taken a hit in the last 10 sessions are from mid and small-cap space. Even though valuations of these segments have eased, investor sentiment has deteriorated, suggest experts.
The valuations of largecaps are rich as the Nifty is trading at a forward PE of around 18.5x. In contrast, the midcap forward PE is cheaper at around 15.5x.
“Time-wise also, mid and smallcaps have been correcting and underperforming the Nifty for last 18 months,” Rusmik Oza, Head of Research, Kotak Securities told Moneycontrol.
“Due to the elevated Nifty levels, investors are reluctant to invest in the broader market, as any correction in Nifty could lead to sharper fall in the broader market,” he said.
Experts advise investors to ignore the noise and stay with quality largecaps, and midcaps. If we look at the last one-year performance of mid and smallcaps, they performed poorly returning -5 percent and -16 percent, respectively, against Nifty’s return at 11 percent for the same period.
“It is a known fact that even for longer time horizons, smallcaps have not been able to beat the returns from largecaps. If you see the three-year returns for Nifty, midcaps and smallcaps, it has been 13.5 percent, 10.5 percent, and 7.9 percent, respectively,” Bhavesh Sanghvi, CEO, Emkay Wealth Management told Moneycontrol.
“There is merit in investing more into largecaps, followed by midcaps, for higher portfolio returns, over longer investment horizons. This clearly lays down the space of preferences,” he said.
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