Quantum shift in foreign capital flows into equities will be shaped by investors finding green shoots, says Bank of America’s Debasish Purohit

• A large part of the capital flows into listed securities are coming from India or EM dedicated funds
• Global allocation funds would like to see some more stability on the global front before allocating to broader EMs.
• Secondary market transactions in the Zomato block was a good way to test the strength of the market, says Bank of America.

Foreign investors may have turned net buyers since July, but this is not a secular trend yet. Since the start of this year, portfolio investors have sold Indian equities worth $20 billion. There’s little doubt that India is a much loved market for this class of investors, but capital flows are likely to remain volatile through this year.

In an interview with Business Insider, Debasish Purohit, co-head, India Investment Banking at Bank of America, says that any quantum shift in real dollar inflows will be shaped by investors finding green shoots through and beyond macro events like Ukraine conflict, energy crisis in the Western world and the global rate cycle.

While he does not see any downtrend in foreign direct investment flows, be it strategic or private, a large part of the capital flows into listed securities are coming from India or EM dedicated funds.

Explains Purohit, “Global allocation funds would like to see some more stability on the global front before allocating to broader EMs. We are in the middle of a rate hike cycle as central banks world over fight inflation and market volatility will be par for the course.”

Having said that, India has witnessed one of the longest periods of selling by foreign investors, which is not sustainable. Purohit says that flow technicals would suggest that it is not a sustainable position for a continued period of time.

While the US Federal Reserve is in the midst of a rate hike cycle, US data is mixed. According to Purohit, employment numbers and credit card spends show a healthy trend, even as new home sales and consumer durable orders went flat last month. Europe is bracing up for a long winter ahead driven by energy supply. “It will be a while before we can build a rate cut cycle again,” he adds.

The early signs of the tide turning in capital flows was visible when bulge bracket portfolio investors took a large bite in secondary sales. The first big transaction that attracted FPIs was the Zomato block that was put on sale by Uber. Bank Of America, which did the transaction, tested the strength of the market with it.

Says Purohit, “We saw signs of life come back in July with flows turning net positive. The Zomato block, which we sole led, was the first sizeable secondary trade to test out the strength of the market. It was the first major equity transaction to be led by foreign investors and in hindsight gave confidence to the market about opening of a window.”

In the subsequent two weeks, there was a flurry of activity. In August, KKR sold its entire 27% stake in Max Healthcare for ₹9,000 crore soon after Uber sold its 6.8% in Zomato for ₹3,088 crore. Be it private or public markets, last year was easy. This year, one has to earn one’s stripes, says Purohit.

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