US bond yields drove FII shift from India, but foreign flows may return as valuations turn attractive: Kotak Securities

Mumbai (Maharashtra) [India], August 25 (ANI): Foreign institutional investor (FII) capital flows will remain the primary determinant of Indian market direction, even as domestic liquidity continues to absorb persistent foreign selling, said Shrikant Chouhan, Executive Vice President and Head of Equity Research at Kotak Securities, in an exclusive interview with ANI News on Tuesday.
While addressing the persistent selling by FIIs over the past two years, Chouhan attributed the movement to surging bond yields in developed economies.
"US 10-year yields moved up from around 3% to 4.5%-4.7%, offering very solid returns. That is why FIIs preferred US 10-year and 30-year bonds over emerging markets where volatility and risk are higher," Chouhan explained.
He noted that global investors also gravitated toward AI-driven stocks in western markets. However, he expects flows to return to India due to its diversified market structure and strong IT services footprint.
Chouhan praised the timely intervention by the Reserve Bank of India (RBI) to mitigate foreign capital outflows and ease banking liquidity as he evaluated the central bank's revised Foreign Currency Non-Resident (FCNR) framework.
"India has attracted nearly USD 70 billion through this scheme, and we may even reach target levels around USD 80 billion," Chouhan stated.
He emphasised that these massive dollar inflows have stabilised market sentiment and halted the rupee's sharp depreciation, anchoring it in the 95-96 range against the US dollar.
However, he pointed out that an extension of the August deadline is unnecessary and cited that the initial target of USD 40- USD 50 billion has been surpassed.
Speaking on the issue of macro indicators including CPI, WPI, and interest rate policy, Chouhan highlighted that sticky food inflation and elevated crude oil prices--driven by ongoing US-Iran geopolitical friction--continue to put upward pressure on the current account deficit. But he ruled out near-term interest rate cuts by the RBI.
"A rate cut is off the table for now. We expect rate hikes instead, potentially starting from December onwards, assuming crude stays between USD 85 and USD 95," Chouhan said.
Expressing his views on the broad market valuations, Chouhan noted that the Nifty's one-year forward earnings multiple has corrected from 20 times to around 17 times, offering a comfortable entry point for investors.
He suggested BFSI, Defence, Healthcare, Hospitality, and Pharma as top choices for traders when asked his views on sector positioning. (ANI)