FIIs looking to buy Indian stocks on any major correction: Pratik Gupta of Kotak Securities

Foreign institutional investors remain bullish on the long-term prospects and are looking to buy Indian equities on any major correction, a senior stock broking executive said on Thursday.

"Last three-four months, India has actually underperformed. The Chinese market, which from a global portfolio perspective, is the biggest rival in terms of where people put their money. But, the mood is pretty optimistic; compared to US and Europe in particular, balance sheets are strong. Almost every foreign investor is by and large looking to buy Indian stocks on any major correction," Pratik Gupta, CEO and co-head of institutional equities at Kotak Securities, told reporters.

The domestic stock broking firm hosted an investor conference, which saw participation from more than 800 investors from India and abroad.

Equity markets in India have been fairly volatile in recent months, amid worries about more monetary policy tightening by central banks as inflation remains strong. The massive sell-off in shares of Adani Group companies following allegations of accounting fraud and stock price manipulation by US-based short seller Hindenburg Research has also added to the downward pressure.

However, the Adani episode hasn't dented investor appetite for the broader equity market in the country.

"Earlier, both with foreign as well as local investors, there were concerns about systemic risk. But over the last few weeks, we have seen clarifications from various banks, from RBI, finance ministry, statements about generally there is not much exposure (to Adani Group). Almost everyone (FIIs) invest in other emerging markets also. They see these things happening, some large conglomerate somewhere gets into debt problem or stock prices come off sharply. It doesn't really turn them away from India," Gupta said.

While the mood is not extremely bullish, it is not extremely bearish either, he observed.

Banks, especially large private sector lenders, large IT services companies, and large consumer sector companies are among the areas of interest in India for foreign investors, he pointed out.

Generally, on Dalal Street, investors are bullish on banks, given credit growth has been strong and banks' asset quality has improved significantly.

There is a lot of bullishness in the hotel sector too. The rebound in travel post pandemic has continued, noted Gupta. Also, across most cities and towns, not much fresh room supply is expected to come over the next two years. That will weigh on prices.

"There is limited capacity, demand has gone up sharply and it takes three-four years for new hotels to come up. Investors are positive on the short as well as long term," said Gupta.

Green shoots are also emerging on the capital expenditure front, where private sector investment remains slow, but things are expected to pick up over teh next six-twelve months.

Investors, however, remain cautious on consumer discretionary companies as the slowdown seen post-Diwali period has still not reversed he said.

On the IT services sector, the rupee depreciation against the US dollar and lower wage increase should offset any slowdown in demand. So, while there may be slightly slower revenue growth, margins may be stable to being modestly better, opined Gupta.

Overall, this year the expectation was that central banks would reduce the quantum of interest rate tightening as inflation comes under control. However, over the past week, concerns have intensified that inflation remains sticky and rates may go up some more. It could have a bearing on investment flows into emerging markets.

Also, there is concern that higher interest rates could lead to a deeper economic slowdown.

Over the next few months, Indian equity markets are likely to trade sideways, feels Gupta.