Rising FII outflows may not be bad for Indian market, says Enam’s Manish Chokhani: Here’s why

Samvat 2080 has marked a banner year for the Indian stock markets, with the Nifty witnessing a remarkable 30% rise since last Diwali. The rise is largely due to local retail money, which has been flowing into markets like an unstoppable freight train. Investors have pumped $4 billion into equity mutual fund schemes every month, underlining the growing interest in Indian stock markets.

From a macroeconomic perspective, India’s growth story remains compelling. The nation continues to maintain its position as the fastest growing economy globally, driven by multiple growth levers such as demographic dividend, a massive domestic market and initiatives like Make in India. Furthermore, the emergence of unicorns, rapid infrastructure development, and growing participation of retail investors have collectively contributed to the bullish sentiment in the markets.

As Samvat 2081 approaches, investors want to know if this bullish trend will continue. CNBC-TV18 spoke to Manish Chokhani, Director of Enam Holdings, to explore the outlook for the stock markets in the new year.

Below are excerpts from the interview.

Q: We have recently seen significant FII selling, with almost $8 billion in outflows so far this month. This marks the fourth largest episode of foreign investor withdrawals in history. What is driving this trend?

Chokhani: Yes, it’s a bit like 2008, except the foundation is very different. Also, the fact that there is a lot of national money; otherwise this would have been a deeper correction. But having said that, foreigners own between 15% and 16% of India, so they have at least $800 billion in shares. Now they have sold 10 billion dollars, so they have sold 1% of what they have. We should not hold a grudge against them for the fact that, in this context, in the last six months alone, we have raised $30 billion in our markets, of which $15 billion has come from companies that raised it to develop new capabilities or whatever. But in reality $15 billion has been sales from developers and private equity.

These promoters include foreigners from all over the world. Investors such as GE and Whirlpool have sold from the United States. Vodafone has sold from the UK. Sumitomo has sold from Japan. Hyundai and soon Samsung will sell from Korea. SingTel has sold from Singapore and in fact even our own Tata Sons has sold part of TCS. Anil Agarwal has sold Vedanta. People realize that the market offers good value. Why not take advantage of it when people sell and take home money, as happened in the early 2000s when Warburg and Pincus cashed out on Bharti; opened the floodgates to private capital in India. This type of sale can be absorbed. It generates confidence that this is a two-way street. I’m not trapped like in China or Africa, where I can get in but I can never get out. It may not be a bad thing and we needed the market to cool down.

Q: The question is when will they stop leaving? And why do they leave, especially foreigners? What is your meaning?

Chokhani: The context is that if you have 800 billion dollars and you take 10 billion dollars home, they won’t go away; They are tactically readjusting.

Q: Tactically readjust why? Why is India expensive?

Chokhani: India is very expensive. Nobody has denied it. I think if we didn’t have this $50 billion of domestic inflows, I don’t think anyone would be arguing that this is a cheap value market that we should enter and take new positions. Everyone is happily riding the rising tide, but profits are slowing. There is the stimulus in China. It is to be hoped that the United States will now have a second stage of growth. In fact, if markets believe Trump returns and tax and tariff cuts are delivered, American prosperity will return. We have a market capitalization of $62 trillion, of which if we earn 10%, we will still earn $6 trillion, compared to even if we earn 25% of India’s $5 trillion, that gives us an additional trillion, so percentage and absolute gains gain play in people’s minds.

Q: So one is the ratings, that’s the only thing, right? Is there nothing else?

Chokhani: India, post-COVID, from a recovery perspective, the big themes that we talked about around discretionary consumption have materialized. We talked about the platform plays with Zomato and all the others have been developed. We are talking about privatization works, which are Adanis and Bharti, and they have all been carried out. You wanted the financialization move to happen, which everyone assumed was just about the banks. It was developed in PSU banks and ICICI banks and all the others, and the capital market plays have done fantastically.

And then the government came and stepped on the accelerator with the PLI and infrastructure spending. It gave you a whole new boost in power supplies, defense, roads, railways, and they have come like a springboard from a low point that was contained. If you take a cap from 2018-2019 to now, the earnings cap is pretty much what it should have been in the mid-teens, and the cyclicals are the comebacks, who also remember the last time they had their day . In the sun was the bull market of 2008. All capital goods, defense, industrial, real estate, went nowhere between 2008 and 2021. Don’t deny them their place under the sun. Enjoy a few years.

Our problem as investors is that we may be overpaying up front, something we’ve also talked about so many times in the past that we should be at the center of a crisis this decade. It has happened with internal flows. I am disappointed with what has happened with global flows, and even with FDI, because apart from the magnificent seven, which are generating money hand over fist, it is not that the old industrial or consumer stocks in the world are doing well, and all were pressured to the extreme to make buybacks and reward their executives. It’s not that they’re looking to expand and then half of the world’s manufacturing GDP goes into the auto industry, and they’re just shocked by what the Chinese have done with electric vehicles. We can see how the European chemical industry is being emptied and sold left and right. So in that frame of mind, they’re not likely to say, let me go out and expand the expansionist tendencies in companies that will now emerge from Asia, largely, or perhaps the Middle East. I think money from the Middle East still comes in with sovereign wealth funds and so on. But, unfortunately, the Asians and especially the Japanese have not yet arrived very strongly.

Q: Both FDI and portfolio flows?

Chokhani: Both ways.

Q: So that’s still pending, would you say?

Chokhani: I think it’s still pending. Portfolio flows from the West, FDI from Asia and the Middle East. I think a significant amount of money will come from there.

Q: But do you think we’re approaching a period of at least, from a market perspective, some temporary correction?

Chokhani: I think we will reach a collapse at some point in this decade, I would hate for that to happen because then 20 years are forgotten, like what happened to Japan, like what happened to China.

Q: But right now, are we at a turning point or not?

Chokhani: Right now, supply meets demand. I just hope that even the government collects and privatizes because if they can take money from the markets three or four times what they invested and reuse it to create more infrastructure and other assets, that will only accelerate growth. Because remember that the free pass that we got after COVID to inflate the fiscal deficit no longer exists, and that gave us the increase in spending on infrastructure, defense and railways, which now must be reduced for well-being, which is the need of the elections. time now. So you’re in for a surprise on that side, as the capex levers are suddenly pulled back. And now the worry is that, with the K-shaped recovery, the top has gone to buy their bigger houses and their bigger cars and vacations. What about the bottom end?

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