Mumbai: Weak institutional investment from domestic institutional investors (DII) and foreign portfolio investors (FPI) since September have led the Indian equity markets into a consolidation phase, according to a report by ICICI Securities.
The report noted that the sharp bounce back by the market after the lows in March was in anticipation of normalising economic activity, which has shown up in terms of high frequency data in September including PMI, GST collection, electricity demand, improving exports, wholesale auto sales.
“Institutional flows both from DIIs and FPI’s have turned weak since Sep as sharp upside in stocks since March lows turns equity valuations expensive. Weak institutional participation is resulting in a consolidation phase for equity markets currently,” it said.
It noted that current market behaviour of muted flows by institutional investors and the resultant consolidation in stock prices imply economic activity may plateau going forward after normalising to pre-Covid levels.
Expecting economic activity to rise beyond pre-Covid level without large fiscal and monetary stimulus would be erroneous as aggregate demand in the economy was already weak before the impact of the pandemic, it said.