Sensex rally may be short-lived due to poor third quarter results.
Continuing their December buying spree, foreign institutional investors (FIIs) have begun the New Year with fresh buying in Indian markets even though experts feel that the current rally is likely to be short-lived.
The Bombay Stock Exchange (BSE) benchmark index, Sensex, closed at 10,275.60 points, up 14.6 per cent from a month ago. FIIs bought equities worth Rs 1,750.1 crore ($433.5 million) in December.
Last year was a terrible year as far as FII inflows in the Indian market went — a fifth of the total FII selling since 1999 came in 2008. According to the Sebi website, FIIs have invested over $53 billion in the Indian market since 1999. Data prior to that year are not available.
Market players say 2009 may not be bad insofar as FII inflows are concerned. “While the inflows may not reach dizzy levels, this year might still see about $3-4 billion coming into the Indian market from FIIs,” said the Institutional Head of a brokerage firm, who requested not to be named.In the first three trading sessions of 2009, FIIs have bought equities worth Rs 202.60 crore in the Indian market.
January has traditionally been a month when FIIs make fresh investments, taking the market up. Since 1999, FIIs have been net sellers in January only twice — in 1999 and 2008 when they sold equities worth Rs 25.50 crore and a whopping Rs 17,227 crore respectively. The January 2008 selling was apparently caused by the credit turmoil in the US.
Brokerage house India Infoline expects Indian equity markets to generate a return of over 30 per cent in 2009. “We believe FII flows will be positive in 2009, led mainly by increased weights in emerging markets and global funds. Earnings growth momentum and macro data will be bad for the next few quarters, but markets will look for growth cues beyond the next two-to-three quarters,” said Ashutosh Datar of India Infoline. The modest FII inflow, however, may not help the markets much as the October-December quarter results will be the weakest and may put an end to the market rally. They also feel that announcement of a series of measures by the government may not help much. “We expect the Sensex to see selling pressure at 10,500 levels and investors will then focus on the third-quarter earnings next week. Friday’s is the second stimulus package in one month. However, this may not be enough to either support an increase in lending or an increase in demand. Borrowers will benefit from further interest rate cuts, but the impact on the economy, and banks in particular, will take time,” said Jigar Shah, Senior Vice-President and Head-Research at KIM ENG Securities India, a Singapore-based stockbroker.
“We continue to recommend ‘selling into strength’ for auto, cement, property and retail sectors,” added Shah.
A strategy report from Motilal Oswal financial services said that markets have discounted an almost no-growth environment for FY10. “Despite significant downgrades, we expect 8 per cent earnings compounded annual growth rate for Sensex companies over FY08-10. Some key themes for investing in 2009 will be abundant liquidity, low interest rates and falling commodity prices,” the report said.
