Propelling Sensex and Nifty to fresh all-time peaks, foreign institutional investors (FIIs) have been buying Indian stocks non-stop with a cumulative inflow of Rs 32,000 crore on Dalal Street in 12 trading sessions.
FIIs can be seen pouring money into India funds at the cost of China, Brazil, Taiwan and South Korea as consensus is gradually building on imminent rate cuts in the second half of 2024. This month’s buying comes after FII outflows worth over Rs 34,000 crore in the last 2 monthsLucknow Stock. For 12 consecutive trading sessions from June 7 till June 25, FIIs have been net buyers on Dalal Street, according to Sebi data.
Whether you call it a pre-Budget or a post-election rally, the stock market looks poised to extend the bull run in July when Nifty has shown a strong positive price seasonality with an average return of 3.3% in the last 10 years.
“The view is that the Indian equity markets can deliver much better returns going forward from here on. And that is primarily the reasons why not only FIIs have been buying, but even domestic institutions and retail participation has been on an elevated level. Because of certain short term reasons, like a little bit of deficit of rainfall etc, there could be a correction in the market, which is healthy in terms of fresh buying coming into the market,” Gaurang Shah, Senior Vice President, Geojit Financial Services, told ET Markets.
Also read | FIIs have sold Rs 1 lakh crore worth of stocks from these 5 sectors in H1 of CY24
Here’s what’s behind the rush for Indian equities:
1) Post-election stability
Investors are expecting that the stability of India’s growth may get solidified going forward under a robust democratic framework. Recent announcements by various ministries continue to increasingly point towards business as usual on all significant fronts such as infrastructure, housing, energy transition, railway electrification and technology upgradation, said Ruchir Kapoor, Managing Director, Merisis Wealth.
Typically, FII buying is from a longer term perspective, which analysts say signals that the India growth story remains intact.Kolkata Investment
2) Value buying in bluechips
A bulk of the FII flow is believed to be going into bluechips, private sector banks in particular, which were lying untouched in the bull run so far.
Despite recent market highs, banks, financial services and IT stocks are trading below their historical average valuations, potentially offering value opportunities as it catches up with market trends, said YES Securities.
3) Budget expectations
Market participants are hoping for a reform-oriented budget from the government that would translate into buying action in stocks supportive of long-term economic growth.
The upcoming Budget will be a closely watched event as there are apprehensions in some corners about the government returning to populism, but it is very likely that the continued push on capex and infrastructure will sustain, Kapoor said.
4) Macro cheer
Whether it is India Inc earnings, GDP growth rate or current account turning surplus in Q4 FY24, the macro set-up is providing the perfect backdrop for FIIs to return.
Foreign investors are prioritizing long term stability over near-term concerns as Indian corporates continue to report record revenue and profit growth in the quarter gone by, say analysts.
Currently, the financials and consumption stocks are catching-up driven by improved balance sheets, a strong GDP growth forecast, and softening inflation, said Vinod Nair, Head of Research, Geojit Financial Services:
5) Under-ownership
While India’s weight in the MSCI EM index has increased from around 8% pre-COVID to 17% now, most EM dedicated fund managers have not kept pace with this rise owing to election overhang as well as high valuation concerns, analysts say.
One of the reasons behind the inflow in recent days is also due to the under-ownership.
“It is always good to have FIIs at the lowest level of ownership. At the peak, we had 24% of the market owned by FIIs. Today, we are close to 16%. So, most of the remainder of investors probably are going to be long-term. So it is highly unlikely that they will keep on selling more. We are probably at the bottom of the FII selling cycle. It is more likely that we may see ownership going up,” said Samit Vartak of SageOne Investment Advisors.
6) Bond index
There is a likelihood of the rupee turning stable with a positive upward bias in the near term on expectations of big debt inflows after the inclusion of India in the Global Bond EM Index this month. This can act as a trigger for more FII inflows into equity, going forward, Dr V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.
7) China pullout
One of the reasons behind the FII exit in the last 2 months was the outperformance of Chinese equities. June hasn’t been a good month for China and as a result dollars are now flowing back to Dalal Street.
(Data: Ritesh Presswala)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)New Delhi Investment
Ahmedabad Wealth Management
