Despite high valuations and the sharp rise in Covid-19 cases, foreign portfolio investors (REITs) remained bullish in Indian markets in the first six months of the calendar year amid anticipation of a economic recovery.
The month of June saw REIT inflows of Rs 17,215 crore, bringing the total REIT investment in equity for the calendar year 2021 to Rs 60,342 crore. However, the debt market reported REIT outflows of Rs 22,000 crore. Foreign investors made net investments of over Rs 1.20 lakh crore in November and December 2020 and the biggest monthly inflow in 2021 to date was Rs 25,787 crore in February.
The Sensex rose 9.9%, or 4,723 points, to 52,484.67 in the past six months.
S Ranganathan, Head of Research at LKP Securities, said: âAs the earnings-to-GDP ratio peaked in 7 years, REITs continued to trust Indian stocks with positive flows of over $ 120 billion. Rupees during June 2021. June saw a gradual opening of the localized foreclosure seen in April and May and REITs bought stocks in sectors like IT, fintech and insurance, which were again fairly broad among large and mid caps. “
In line with the liquidation trend in the debt market, REITs sold debt worth Rs 4,828 crore last month, bringing the total debt sold to Rs 22,151 crore in CY21. The second half of June was marked by continued sales of shares by REITs. During the 10 trading days between June 17 and June 30, REITs sold continuously in eight sessions.
âSelling in the spot markets is actually very high because a lot of bulk trades (mostly purchases) take place outside of the spot market. The strengthening dollar (dollar index at 92.45) and high valuations are major factors forcing REITs to sell more in emerging markets like India, âsaid VK Vijayakumar, chief investment strategist, Geojit Financial Services .
REITs could continue to make profits in India, especially if growth weakens and the recovery takes a hit. However, they are unlikely to sell aggressively despite higher valuations as India Inc is poised to release excellent numbers during FY22, he added.
âOver the medium term, we expect REIT flows to India to remain strong, driven by the resumption of growth. Positive export prospects led by a recovery in the global economy coupled with low interest rates in the domestic market should bode well for India, âsaid Shrikant Chouhan, Executive Vice President of Kotak Securities .
Besides the vaccination campaign and a drop in Covid cases, expectations of increased consumer spending and normal monsoon rainfall are expected to boost domestic demand. âIn addition, we expect the next holiday season to boost domestic demand as well,â Chouhan added.
Analysts do not expect a sharp increase in REIT flows in 2021. âWe remain cautious on REIT flows which will likely be in the order of $ 20 billion as they continue to change their portfolios from country to country. to the other, “said a report from Care Ratings.
However, REIT outflows can occur if the dollar appreciates. “If the dollar appreciates strongly, there is a risk that foreign portfolio investors will pull out of India, but in our view, given the improving fundamentals in India, outflows from REITs would be limited and much lower than the 2001 taper tantrum, “said a credit executive. Report on Swiss asset management. “If India manages to vaccinate its population faster, the above-average valuation premium for India could hold up given the marked improvement in corporate leverage and return ratios.”
On the other hand, the level of inflation in the United States as well as in India surprised on the upside. “Federal Reserve (Fed) officials have started discussing scaling back their asset purchase program (in our opinion mid-next year) and rate hike expectations have been brought forward to 2023 “said Credit Suisse.