Sounding a note of caution on the ongoing stock market buoyancy, HDFC chairman Deepak Parekh on Thursday said the rally in the markets has largely been driven by foreign investors who are “party-hoppers” while domestic institutions have been less aggressive and retail investors are still hesitant.
In the calendar year so far, FIIs have invested $15.9 billion in equity and debt in India and stock indices have risen 20 per cent, making India the flavour of the day, he said. “The feel good factor is really high. “Not that I wish to be the party spoiler, but do remember that FIIs are big party-hoppers. If they don’t like your music and if they don’t like the drinks being served, they’ll find another party to hop on to really quickly,” Parekh said. “The rally in the markets has largely been driven by FIIs. Domestic institutional investors have been less aggressive.”
According to Parekh, the unfortunate part is that retail investors typically enter markets on the highs, instead of investing on the lows. There is a need to incentivise and encourage more retail investors in the equity markets, he said at a conference organised by SBI Capital Markets.
“India decisively voted for change,” Parekh said. “We are still riding the wave of euphoria, best reflected in the way the stock markets have reacted. After the Sensex crossed the 25,000 level, brokerage houses swiftly outdid each other in their forecasts, predicting a quick rise to 28,000, then 32,000 and 1,00,000 by 2020. I’ve now lost count of these forecasts.”
“I wouldn’t pay much heed to these predictions. What is important is that there has been a complete re-rating of India,” he said.
Now the four major central banks — the US Federal Reserve, Bank of England, ECB and the Bank of Japan — are likely to show policy divergences, he said. The Fed and BoE are expected to slowly start raising interest rates, while the ECB and Bank of Japan are likely to continue easing. “So one is going to see increased activity and volatility in the currency and bond markets,” Parekh cautioned.