Despite recent rebounds, Foreign Institutional Investors (FIIs) are maintaining a cautious stance on the Indian market, with domestic flows expected to be the primary driver of market activity, according to market expert Sunil Subramaniam. This perspective highlights the increasing importance of domestic investors in shaping the trajectory of the Indian stock market.
Subramaniam anticipates market stabilization and a potential rebound in the IT sector, spurred by encouraging earnings reports from companies like Wipro and LTIMindtree. He points out that the IT sector is currently oversold, presenting an opportunity for a catch-up rally, but this is contingent on the return of FIIs. The IT sector's potential is also supported by its transition to high-value consulting, making it attractive to foreign investors, especially with a strong dollar boosting rupee earnings.
Furthermore, SubramaniamForesees continued strength in the capital goods sector, driven by rising capacity utilization and a focus from domestic investors, anticipating a revival in private capital expenditure (capex). This aligns with expectations of better earnings in the coming months and the Reserve Bank of India's (RBI) citation of strong domestic growth.
Several factors contribute to the current market dynamics. Global liquidity is improving due to expectations of Federal Reserve rate cuts, a weaker US dollar, and increased risk appetite. The RBI's actions, including repo rate cuts and eased provisioning on project loans, are also boosting financial stocks. Moreover, the consistent investment by Domestic Institutional Investors (DIIs), particularly through systematic investment plans (SIPs), provides a crucial cushion against volatility. DIIs have been pumping significant amounts into the market, with investments exceeding ₹1.25 lakh crore from May to mid-June.
However, geopolitical tensions and concerns about oil prices continue to create nervousness among foreign investors. FIIs often react to global events, such as oil spikes, by pulling money out of the market, but domestic fund managers with ample liquidity have been stepping in to buy on dips. This indicates that while FIIs can drive short-term momentum, DIIs bring stability and long-term buying support.
Looking ahead, the signing of a Bilateral Trade Agreement (BTA) with the US could trigger a significant return of FIIs to India. Sectors like private sector lending, including banks, NBFCs, and gold financing companies, are expected to benefit from supportive domestic factors. While short-term volatility may persist, the underlying tone of the domestic market remains bullish. The focus should be on sectors poised for growth, with a balanced approach to portfolio creation considering both short-term gains and long-term investment.
