'Avoid Panic Selling. Nifty To Hit 29,263'

'Market corrections are a natural part of investing, so it's essential to remain focused on long-term financial goals.'

With the Trump administration takes the reins of the global economy, the equity markets are already feeling the jitters even as the US benchmarks the S&P 500 and NASDAQ printed gains of one per cent the day he took the oath of office.

The Indian benchmark, Nifty 50, though, is on a tricky wicket as evidenced by the 6 per cent spike in the fear index -- The India VIX -- as intra-day the index spiked and crashed almost a per cent -- 200 points -- within a span of 30 minutes between 11.45 am and 12.15 pm on January 21.

Vikram Kasat, Head Advisory, Equities, Capital Markets, Derivatives, PL Capital, tells Prasanna D Zore/Rediff.com why FIIs (Foreign Institutional Investors) have sold equities more than Rs 2.15 lakh crore between October 2024 and January 20 2025, what could attract the FIIs back to Indian markets and why SIP investors should not panic at this juncture.

Kasat expects the Nifty to hit a target of 29,263 in the next 15 months, a handsome gain of 25 per cent from the Nifty close of 23,350 on January 20.

The benchmark indices have cooled by almost 10 to 12 per cent from the all-time peaks in September last year, and broader indices have seen a deeper cut since then.
What are the main reasons for this fall, and how long do you think we will be facing this uncertainty?

The main reasons for this fall include:

• Significant foreign institutional investors' (FII) outflows.
  Between October and December, FIIs pulled out around Rs 1.87 lakh crore.
  In the first fortnight of January alone, they sold nearly Rs 40,000 crore.
  This profit booking and a shift in preference towards alternative opportunities have contributed to the decline.
• Concerns over high valuations in India, coupled with slowing corporate earnings growth, have made the market less appealing to FIIs.
• The strength of the US dollar and rising US treasury yields has made emerging markets like India less attractive.
  Higher yields in the US offer better returns, leading investors to reallocate their funds away from Indian markets.

You mentioned the massive FII outflows. Is this because of some structural shift in how they value Indian markets?
What has changed for FIIs concerning Indian equities?

There isn't a structural shift in how FIIs value Indian markets. The main reasons for their selling are:

Persistently high valuations in India combined with ordinary fundamentals, making Indian markets less compelling compared to others.

Stimulus measures in economies like China have diverted FII attention to those markets, as they present more lucrative opportunities currently.

How long before FIIs start coming back to India, and what kind of valuations would attract them in the current scenario, considering geopolitical tensions, US Fed rate concerns, and the concerns surrounding Trump administration policies that could possibly hamper trade?

The upcoming Budget and the policies of the Trump 2.0 administration hold the key to market returns.

If the government delivers a growth-oriented Budget while maintaining fiscal discipline, this could pump-prime the economy and incentivise middle-class spending, improving market appeal.

FIIs may start returning after the Budget if they see favourable valuations and policy clarity.

What are the main headwinds for Indian markets ahead of the Budget? Can the Budget revive FII interest while improving the Indian economy?

The main headwinds include currency depreciation and inflationary concerns, which could delay anticipated interest rate cuts. The other is policy uncertainty before the Budget.

If the Budget focuses on fiscal consolidation and growth-oriented policies, it could revive FII interest and improve the overall market sentiment.

Domestic investors have been offsetting some of the FII selling with flows of around Rs 50,000 crore per month into mutual funds.
Is this liquidity enough to counterbalance the FII outflows and help markets reach new highs?

Domestic institutional investors (DIIs) have been crucial in stabilising the market despite heavy FII selling.

From 2021 to date, FIIs have sold over Rs 7 lakh crore, yet the Nifty has delivered a CAGR (compounded annual growth rate) of 17 per cent during this period.

Once FIIs return, the combination of strong DII and FII flows could push the Nifty to a target of 29,263 within the next 15 months.

What uncertainty can be expected as the Trump administration takes over? Is this good or bad news for Indian equity markets?

While potential changes in US trade policies under the Trump administration could affect Indian exports, especially IT and manufacturing, much of this uncertainty has already been priced into the market due to the sharp corrections. The situation may not worsen significantly from here.

At what level do you see this correction stemming, and what could drive the markets toward 29,263 in the next 15 months?

The current correction could stabilise around 22,400-22,800 on the Nifty. Factors driving markets to 29,263 include:

• A growth-oriented Budget that boosts middle-class spending.
• The return of FIIs.
• Attractive investment opportunities in sectors like capital goods, infrastructure, ports, energy, data centers, healthcare, tourism, and discretionary consumption.

Which sectors currently look attractive, and where do you see value for long-term investments?

The Indian capex (capital expenditure) story appears promising, with attractive opportunities in:

• Capital goods, infrastructure, ports, energy, data centers, railways, and defence
• Discretionary consumption sectors such as jewellery, food services, retail, and financial assets.

These sectors represent multi-bagger potential.

What advice would you give retail investors concerned about market corrections, especially those investing in mutual fund SIPs?

Retail investors should:

Stay invested. SIPs help average costs and deliver good long-term returns despite short-term volatility.

Focus on fundamentals. Choose funds or stocks with strong fundamentals and robust growth potential.

Avoid panic selling. Market corrections are a natural part of investing, so it's essential to remain focused on long-term financial goals.

Disclaimer: This article is meant for information purposes only. This article and information do not constitute a distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial products/investment products mentioned in this article to influence the opinion or behaviour of the investors/recipients.

Any use of the information/any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.