The alarming spike in fresh COVID-19 cases in Indian and concerns over the risks to economic recovery due to the stricter lockdown in many states have spooked investors.

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The Foreign institutional investors (FIIs) and foreign portfolio investors (FPI) have turned jittery on Indian markets as they have pulled out more than Rs 3,800 crore ($518 million) from equities so far in April. The outflows come after six months of strong inflows.

The FPIs have pumped more than $26.85 billion over the past six months in Indian equities, as per data available on NSDL. In FY2020, FIIs had infused a massive sum of Rs 2.67 lakh crore in Indian markets.

However, domestic institutional investors (DIIs) net bought shares worth more than Rs 5,200 crore in March and more than Rs 850 crore in April so far.

Analysts believe worries over the economic impact of the second wave of the pandemic in India have led to the outflows of foreign capital from the market.

FIIs cut relative weight in banks, materials, and IT to push up their relative positioning in energy, utilities, communication, and NBFCs. The overweight of FIIs in banks is now at over six-year lows, while their overweight in NBFCs is now near six-year highs. The underweight of FIIs in energy is also at over four-year lows, according to CLSA.

"Some of the factors that will attract FIIs to India are hopes of strong economic recovery earnings growth in coming years, the weak dollar index, vaccine progress, and policy stimulus measures," said Aditya Shah, CIO of JST Investments.

Shah expects the IT and pharmaceutical sectors to be among the key beneficiaries as a hedge against the current uproar of COVID-19.

Meanwhile, to contain the spread of cases, the government has fast-tracked approval of vaccines on an Emergency Use Authorization basis. Several states have also announced localised restrictions.

"We expect the set of restrictive measures to impact near-term economic recovery till cases stabilise. However, key government authorities and policymakers have ruled out national lockdown. As vaccination pick up further with approvals for more vaccines now in place, we expect the focus to shift back to growth, cyclical recovery and fundamentals," said Gautam Duggad, head of research, institutional equities, Motilal Oswal Financial Services.

The FII outflows has also led to volatility and correction in the Indian market with the Nifty and the Bank Nifty falling around 5 percent and 15 percent, from the recent highs, respectively.

Duggad believes this correction is a buying opportunity and it doesn’t change the medium-term thesis of recovery in corporate earnings led by underlying macro pick-up with a focus on the investment cycle.

(Edited by : Jomy)

First Published:Apr 16, 2021 2:57 PM IST