Domestic Inflows Helped Indices Hold Gains, Says ASK Hedge's Vaibhav Sanghavi

There is a direct correlation between interest rates and the strengthening of the dollar and foreign portfolio investment flows. Currently, both these factors are pitted against emerging market flows, according to Vaibhav Sanghavi, chief executive officer at ASK Hedge Solutions.

Emerging markets are currently not in good shape and this unfavourable situation has led to significant amount of outflows from these markets, he told BQ Prime's Niraj Shah. India constitutes approximately 14-15% of the overall basket, he said.

"Domestic inflow in India has been very resilient, strong and thereby, actually helped the overall indices to not give away those kind of gains and to also decrease the overall volatility," Sanghavi said.

"The large-cap is much better poised than the mid- and small-cap (space), but the larger flows we are seeing is going towards the broader market."

Foreign investors turned net sellers of Indian equities in September, snapping six consecutive months of buying. Overseas institutional investors have offloaded Rs 9,935 crore worth of stocks in October so far, according to data from the National Securities Depository Ltd.

The inflow of foreign equities into India had already slowed down in August, due to rising bond yields in the U.S., a stronger greenback, and surging crude oil prices.

Whenever interest rates rise sharply or remain elevated, there is an impact on the economy and subsequently on the corporate earnings as well, Sanghavi said. However, if yields stabilise and potentially move downwards, it would be better for equities, he said.

The Sensex and Nifty fell more than 1% on Thursday, adding to the loss of Rs 14.6 lakh crore over the previous five sessions. In all, the BSE indices fell 4.94% in the last six sessions and NSE Nifty 50 dropped 4.82%, according to Bloomberg data.

The geopolitical tension is affecting the global economy. High market valuations are making things complicated, Sanghavi said.

It's not just these factors. Global monetary policies and their corresponding interest rates are also significant factors contributing to the intricate web of challenges faced by the global economy, he said.

"As always seen that during the fall and post the falls, while the markets are ready to be invested in, we have seen actual outflows happening during those periods..." he said.

According to him, while it is said that investors should invest in the cheaper levels of the market, human behaviour often works in the opposite way. People actually redeem purely because the amount of negative news during the period is at peak and people get too carried away and exit or trim their portfolios, he said.

"That is where you have your hedges kind of come in, give you that comfort on the portfolio, reduce your correlation, and give you ammunition to kind of go and invest during those kind of times."