FIIs' selling trend in India expected to slow down

Rahul Veera from Nippon India AIF says that Foreign Institutional Investors (FIIs) are nearing a point of saturation in their selling. He believes that the intensity of selling, which has been strong over the past six months, is expected to decrease moving forward. The dollar index has fallen recently, which has affected various currencies including the euro and yen. Veera notes that despite this decline, FIIs continue to sell off their holdings. He explains that the dollar index is important for understanding global market movements, including the flow of investments between emerging markets and developed markets. Veera points out that currently, FIIs hold about 16% of the total market index. Historical data shows that a drop to 13% could signal significant selling. This could lead to a further decline in the market, but he believes that selling pressure may ease soon. The overall market valuation has shifted from being overvalued to a more comfortable level. Looking ahead, several factors could influence market performance, including the upcoming monsoon, corporate earnings, and potential regulatory changes. Veera emphasizes the need for careful stock selection amidst the current market conditions. He suggests that while there are opportunities, investors need to be discerning, particularly outside the banking sector. He highlights healthcare and certain building materials, like cement, as sectors with potential for growth. Some small pharma companies are expected to perform well in the next three to five years. However, he warns that investment in government-dominated sectors may be more challenging due to stagnant capital expenditure. Veera is optimistic about future earnings growth, projecting an increase of 10-11% for the upcoming fourth quarter. He notes that export-oriented companies may see better performance due to current geopolitical tensions, but warns that this may not continue in the following quarter. Regarding small and mid-cap stocks, Veera believes their recent momentum may have peaked. With a surge in new Demat accounts, there was significant investment in these stocks over the past few years. He advises that future success in this space will depend on careful stock selection and an analysis of company performance over the next few years.