It’s been a bit of a dull day, with the Nifty market not going anywhere. However, as I record this, there’s breaking news: we have a new RBI governor in place. Mr. Sanjay Malhotra has replaced Mr. Shakti Kantas as the new RBI Governor. Additionally, the USDINR has spiked to 84.8, which raises some questions about what the market expects from the new RBI leadership.
In today’s video, we’ll discuss whether Foreign Portfolio Investors (FPIs) are losing faith in India. There has been a lot of talk about overseas investors pulling out of India, and some are perhaps reading too much into it. We’ll look at the numbers and provide some clarity on this narrative.
Where is the market headed?
Market Overview
The market has had a very tepid move for the second day running. We saw a huge move in Nifty on Thursday, but the following two days, Friday and Monday, have been inside bars with very small price action. This suggests that the market is cooling off and consolidating without dropping much. This is typically a healthy formation after a big move up, as it signals potential continuation of the rally.
Looking at the charts, Nifty is still looking bullish. We’ve broken through major resistances near 24,500, and we’re currently sitting comfortably at 24,619. The 40-day simple moving average (SMA) seems to be a crucial level of support if we do see a pullback. A rally continuation from here seems likely in my view.
Nifty Next 50
The Nifty Next 50 is also looking strong, though not as robust as Nifty itself. The breakout here happened 34 days ago, and despite a slight dip of -0.45% today, the overall outlook remains positive.
Nifty Mid and Small Cap
Midcaps are looking even better, up by 0.38% today. They’ve already surged past previous resistance levels and are now challenging major resistances, possibly heading for new all-time highs.
Smallcaps are doing even better than midcaps, showing strong upward momentum. Much like in June, the market has moved in a single direction, and we could see new all-time highs soon. Smallcaps are up by 0.37% today, showing impressive strength.
Nifty Bank Overview
Bank Nifty had a dull day, down -0.19%. The expectation of a rate cut on Thursday did not materialize, though there was a CRR (Cash Reserve Ratio) cut. Despite the disappointment, Bank Nifty didn’t drop much, which is a positive signal for the sector.
Advanced Declined Ratio Trends
Momentum trends are overall leaning towards the green, with 259 advances to 237 declines, indicating a balanced but not negative consolidation day.
Nifty Heatmap
Looking at the heat map for Nifty, we see a mix of gains and losses. On the positive side, Wipro, HDFC Bank, Kotak Bank, and others posted small gains. On the negative side, Hindustan Unilever, ITC, Nestle, and Tata Consumers saw large losses, contributing to the weak performance in the FMCG sector. Tata Motors, Axis Bank, and Asian Paints also experienced notable drops of -1.8% and -1.56%, respectively.
FMCG has become a growing concern, especially following a drop in Godrej Consumers. The entire FMCG basket has been lagging behind while other sectors like real estate and pharma are gaining. I’ll show you more on the chart shortly.
Bajaj Holdings and NHPC were up 4% and 2%, respectively, with DMart and HAL also showing some gains. Stocks like DLF, IRFC, and IREC showed minor positive movement, while others like Mother Sun, Havels, Zomato, and DVs Lab were down.
Sectoral Overview
The FMCG sector was the biggest talking point today, down -2.2% for the day, -2.5% for the week, -3% for the month, and a staggering -12.4% over the last three months. The sector has been a major underperformer, and even over a 12-month period, it has delivered only a 5.3% gain. This is in stark contrast to sectors like real estate (up 45%), pharma (up 38%), and public sector enterprises (up 41%).
Many portfolios, especially those focused on high-quality stocks, have large allocations to FMCG and private banks, which have collectively provided only 5% returns over the last year. Meanwhile, other sectors have seen substantial growth. This performance gap can be frustrating for investors, especially when other sectors are significantly outperforming.
Sectors of the Day
Nifty FMCG Index
FMCG stocks, such as Hindustan Unilever, Dabur, Colgate, Nestle, and others, have faced a steep decline, and it’s clear from the charts that the sector is in trouble. FMCG stocks took support at their 200-day moving average (DMA) in March-May this year but have collapsed since mid-September. The 200 DMA was breached in November, and despite some attempts to recover, the sector has struggled. If the November lows are broken, we could see further downside for FMCG stocks.
Stock of the Day
MapMyIndia
One stock that stood out today was MapmyIndia, which was up 16%. Recently, the company had been in the news due to corporate governance concerns related to its promoter launching another company. Minority shareholders raised issues, leading to a sharp drop in the stock. However, the company has now decided to reverse its previous decisions and will no longer invest in such private ventures. This move has restored investor confidence, leading to the sharp uptick in the stock price.
Story of the Day
Now, let’s turn to the topic of Foreign Portfolio Investors (FPIs). A recent chart from Bloomberg and Mint shows that in the past year, FPIs have been net buyers in China, with $52 billion in investments. In contrast, India has seen a relatively small inflow of just $62 million, which is negligible in comparison. Other emerging markets like Taiwan, Brazil, Thailand, and Vietnam have experienced outflows.
While this might raise concerns about India’s attractiveness to global investors, it’s important to note that India has fared better than many other emerging markets. South Korea, Indonesia, and India have managed to stay in the positive territory, with South Korea seeing inflows of $4 billion and Indonesia $1.5 billion.
There’s often a narrative that FPIs are shifting capital from India to China, but a lot of institutional investors follow global indices like the MSCI. If an index has a certain weight for India, then these funds have to allocate that portion to India, regardless of short-term trends. While India has seen some outflows, it is still better positioned compared to other emerging markets, and there’s no real exodus from India.
Additionally, the recent tightening of regulations around FPIs and the KYC process has led to some selling, but this is not necessarily a sign of long-term loss of faith. As for valuations, yes, India is relatively expensive compared to other emerging markets, but if you’re looking for growth in an emerging market, India at a PE ratio of 20x is still an attractive option.
Domestic Institutional Investors (DIIs) have become more dominant in recent years, compensating for the modest outflows from FPIs. The inflows from DIIs have been substantial, making up for the small outflow from FPIs in 2024. This balance between domestic and foreign investors could play a crucial role in the market going forward.
Looking ahead, I don’t see a reason why FPIs won’t return to India after a year of flat performance. As earnings catch up with the current market situation, there could be renewed interest from FPIs, especially if global factors change.
