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Will FII investment flow Favour US or China?

by By Trivesh D, COO, Tradejini | @twfindia 27 Nov 2024, 11:37 pm

India's stock market has faced considerable selling pressure from Foreign Institutional Investors (FIIs) recently, with outflows of 94,000 crore in October 2024 and 29,000 crore in November 2024. This has led to the lowest FII ownership in Indian equities in over a decade. However, Domestic Institutional Investors (DIIs) have counterbalanced this trend, buying stocks worth 31,636 crore during the same period. This shift underscores the increasing influence of domestic investors, who are providing much-needed stability amid global headwinds.

Despite these pressures, midcap stocks are drawing fresh investments, highlighting growth potential even as broader markets correct. The correction, while challenging, presents opportunities for long-term investors as key support levels remain intact. Notably, Indian equities are now 83% domestically owned—the highest among emerging markets. Retail investors, driven by systematic investment plans (SIPs), continue to ensure steady inflows, closely linked to the NIFTY 50 index’s movements. This reflects a positive trajectory for India's equity market, backed by strong domestic participation and strong long-term growth fundamentals.

China- Opportunities Amid Challenges

China remains a key player in global markets, strengthened by recent government stimulus measures aimed at reviving investor confidence. However, the country continues to grapple with challenges, particularly in its real estate sector and subdued consumer demand. Despite these hurdles, sectors like technology, artificial intelligence (AI), and renewable energy offer compelling growth opportunities, aligning with global trends in digitization and sustainability.

The real estate sector’s gradual recovery, coupled with China’s dominance in global supply chains, provides further investment opportunities. Notably, US-based China-focused ETFs saw inflows reach $29.7 billion by October’s end, a $10 billion increase from the prior month. Similarly, October saw foreign inflows into Chinese markets rise to HK$117.9 billion ($15.16 billion), reflecting a renewed interest. For Indian investors, funds targeting China's renewable energy and tech sectors may offer attractive long-term returns, albeit with an acknowledgement of associated risks.

United States-Stability Amid Global Shifts

The US stock market remains a magnet for global capital, attracting investments from FIIs and mutual funds due to its economic stability and well-regulated environment. The tech sector, bolstered by strong earnings and innovation, continues to thrive, making the US a preferred destination for global investors. Additionally, the Federal Reserve's dovish stance on interest rates enhances the appeal of US equities, especially for those seeking stability.

However, the US market’s resilience has contributed to capital outflows from emerging markets like India, as investors prioritize safer returns. While this trend poses liquidity risks for India, the US market’s growth trajectory, particularly in technology, remains compelling.

Strategic Portfolio-Balancing is Key

India, China, and the US each present unique opportunities for investors. The US offers a stable investment environment with high-growth sectors, while China combines high potential due to lower valuation with higher risk. Meanwhile, India’s increasing domestic equity ownership and resilient retail participation provide a solid foundation for growth. For Indian investors, balancing diversification across international markets with a steadfast focus on India's strong domestic growth prospects could be a strategic approach for sustained wealth creation over the long term.

(Trivesh D is the Co-Founder and COO of Tradejini, a Bangalore based bootstrapped discount broking firm founded in 2012).