Trump’s Policies and Q3 Earnings May Hold the Key to FII Comeback in Indian Markets
Indian stock markets have been on a rollercoaster ride in recent months, with benchmark indices taking a steep fall since their record highs in late September. The sell-off has been fueled by a combination of weak Q2 corporate earnings, sky-high valuations, a strengthening dollar index, and persistent foreign institutional investor (FII) outflows.
Markets on a Slippery Slope
The Sensex, which touched an all-time high of 85,978.25 on September 27, has since tumbled by a massive 8,398 points, or nearly 10%. Similarly, the Nifty has shed over 2,700 points, a drop of more than 10% from its peak of 26,277.35. The reasons? Tepid Q2 earnings that left investors disappointed, along with muted forward guidance from companies, spurred panic selling among FIIs.
One example is the banking sector, where heavyweights like HDFC Bank and ICICI Bank reported underwhelming growth due to rising credit costs. Investors, already jittery, chose to cut their losses and look elsewhere.
The FII Exodus
FIIs have been net sellers of Indian equities since October, offloading a staggering ₹1.16 lakh crore. On November 18, FIIs slowed their selling spree, netting ₹1,403 crore in sales compared to the daily average of ₹3,800 crore earlier in the month. But this respite was short-lived, as the selling resumed with renewed vigor, with FIIs dumping ₹3,412 crore worth of shares on November 19.
Samir Arora, founder of Helios Capital, summed it up bluntly: “The pathetic corporate earnings are the real culprits here. It’s not just about funds moving to the US or China; global investors simply see better opportunities elsewhere.”
Bitcoin Steals the Spotlight
Adding to the drama, Bitcoin’s meteoric rise has further distracted investors from Indian equities. The cryptocurrency has doubled in value this year, recently hitting an all-time high of $94,078. When faced with such astronomical returns, some investors naturally redirected their funds, leaving Indian markets to fend for themselves.
The Road Ahead: Trump and Q3 Earnings
Market experts believe the next big trigger for FII flows will be twofold: US President Donald Trump’s policies and India’s Q3 corporate earnings. Trump’s potential protectionist measures, such as higher tariffs or stricter immigration rules, could send shockwaves through emerging markets like India. “If Trump’s policies end up being inflationary, and the US Federal Reserve responds with higher interest rates, global funds could further shy away from riskier assets,” warned Parthiv Shah, Director of Tracom Stock Brokers.
On the flip side, Q3 earnings, expected from mid-January 2025, could provide a much-needed boost. Analysts predict better numbers, driven by a recovery in rural and urban consumption and increased government spending. For instance, sectors like FMCG and auto, which struggled last quarter, may see a rebound thanks to festival-season sales and improved rural incomes.
Domestic Investors to the Rescue?
While FIIs have been pulling out, domestic institutional investors (DIIs) have stepped in as the cavalry. DIIs have consistently been buying, providing some stability to the markets. “Their support has been crucial, but we still need FII participation for a full recovery,” noted Ajit Mishra of Religare Broking.
Vinod Nair from Geojit Financial Services echoed this sentiment, saying, “The recovery hinges on an uptick in earnings, which we expect in the second half of the financial year due to higher government expenditure.”
Patience is Key
Industry stalwarts like Raamdeo Agrawal of Motilal Oswal Financial Services remain optimistic. Speaking at the CNBC-TV18 Global Leadership Summit, he urged investors to hold on. “We need fiscal or monetary help, and it will come. Earnings might take six months to bounce back, but they will.”
For now, Indian markets are walking a tightrope. The combination of better Q3 earnings and a favorable global environment could turn the tide, but until then, volatility seems to be the name of the game.
