ET Intelligence Group: Have stock valuations in India reached such levels that long-term investors and overseas funds find them unattractive Delivery volumes on both Mumbai exchanges seem to indicate just that.On the NSE and BSE, delivery volumes in May dropped to 33.03 per cent, compared with the fiveyear average of 41.76 per cent, according to Bloomberg data.
The combined volume on both exchanges (cash market) remained in line with the one-year average of $5.27 billion.
The divergence suggests that traders are more active on the bourses these days than longer-term investors.Outstanding open interest in the stock futures in May stood at Rs 1,100 billion, the lowest in one year, although the market delivered 12 per cent returns in the interim.Foreign portfolio participation is also tepid.
FPI transactions in May dropped to 13.4 per cent against an average of 16 per cent of the total in the past 12 months.The primary reasons are low churning of portfolios by FPIs, which prefer quality large-cap companies.
With no significant investment triggers, FPIs are either deploying fresh money in existing stocks and sectors or exiting due to elevated valuations.
Experts say India looks less attractive to foreign investors now than other emerging markets due to continued earnings downgrades and MSCIs plans to cap Indias weighting on the MSCI EM index.