Expect FII flows to return to Indian equities in 2022: A Bala

Expect FII flows to return to Indian equities in 2022: A Bala

“If one has invested in a single or maybe two-three stocks, if one or two stocks go down very sharply, the realisation of the kind of impact it will have on portfolio would have come to all the first-time investors – be it HNIs or millennials or any youngster who has put money in the market. This is the time investors will also start realising the importance of coming to the mutual funds, SIPs and why asset allocation is important,” says A Balasubramanian , MD & CEO, Aditya Birla Sun Life AMC .

Now is the testing time. One may look back and say the Indian retail investor has exhibited a deep understanding of equities but for the first time they have felt the heat. Now when markets come back, will they be tempted to lock down? Will they be tempted to sell out as has happened in the past or will it be different this time?
Volatility has definitely made people understand their vulnerability. In the last two years, a lot of new investors have come. Millennials have tested their luck in the domestic stock market . These people have never seen such a huge volatility like we saw in the last few weeks. That definitely has given a lot of lessons to people on how to construct the portfolio and that is why mutual funds play a bigger role. Mutual funds have seen cycles in the last 30 years of growth. I think this is the time investors will also start realising the importance of coming to the mutual funds, SIPs and why asset allocation is important.

If one has invested in a single or maybe two-three stocks, if one or two stocks go down very sharply, the realisation of the kind of impact it will have on portfolio would have come to all the first-time investors – be it HNIs or millennials or any youngster who has put money in the market.

This is something I see as a big positive. But having seen that, the sharp fall that we have seen is something that has not not only come for India, but also has shaken the whole world. Whenever the unexpected happens in the market, we see such a sharp fall. But it is also that historically after every such volatility, we have seen a reasonably good period of uptick. But whether it can be different this time, given that the macro economy is not the same as in the past, has to be seen. Today the fiscal is high and the current account deficit is moving towards 2.5%. Currency volatility is setting in. Commodity prices are at an all-time high. Therefore one needs to also look at the market trend to find out if the volatility is short-lived or can continue for some more time.

Whenever the market recovers, how will it be different from Covid recovery? Will it be a U-shape recovery or will it be a classic V shaped one?
A V-shaped recovery looks doubtful given the fact that a lot of macro factors have changed in the sense that commodity prices are at all-time high. Definitely, the input costs for most of the industries have changed. Oil price being at $110, I am sure most of us would have done the maths at the beginning of the current financial year with oil price ranging between $65 and $70. Now when the average is coming to anywhere between $80-90 or $80-100, then naturally the whole maths undergoes a change. Therefore, for the economy to have a sharp uptick and post Ukraine conflict is going to be challenging and even companies’ earnings will come back gradually.

So this year we should not expect returns?
In the first few months, the way the market has fallen, one thing that has happened in the market is whatever the concern was there in the mind of people, excess valuation that was hovering around for sometimes has got corrected. India has outperformed the market. The recent fall has brought that back to somewhat at par with the global market.

Second, global investors in India, for the whole of the year were net sellers. So almost $11-$14 billion selloff that has come from FPI investors got absorbed by the domestic investors and that being the case, FIIs will reverse. FIIs are more opportunistic. Whenever they see fundamentals of the economy undergoing a change, they will, jump the gun and start putting money.

My own feeling is that the biggest trigger will […]

source Expect FII flows to return to Indian equities in 2022: A Bala

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