New Delhi: After playing truant for a couple of months, acting very much like fair weather friends, foreign portfolio investors (FPIs) are back, lured by their love for Indian equity assets. Bulge bracket FPIs have been responsible partly for the July-August bull run in Indian equities and debt which has taken the BSE Sensex and the Nifty to new life time highs.
They have pumped in over Rs 8,500 crore into the Indian capital markets in the last eight trading sessions on improvement in crude oil prices, stabilising rupee and better corporate earnings.
The latest fund infusion comes following a net inflow of over Rs 2,300 crore in the capital markets — equity and debt — last month. Prior to that, overseas investors had pulled out over Rs 61,000 crore during April-June. According to the latest depository data, foreign portfolio investors (FPIs) pumped in a net sum of Rs 2,373 crore into equities during August 1-10 and a net amount of Rs 6,208 crore into the debt market, taking the total to Rs 8,581 crore ($1.2 billion). While domestic mutual funds, not a hefty counter weight to FPIs, had shored up the market during April-June, the fresh infusion has acted as a catalyst.
Initially the July bull run was driven by large caps and several mid-caps were hammered relentlessly due to ASM (additional surveillance measures). The rally, which was extremely narrow, has spread now to select mid-caps and even to some small caps as many stocks are now out of ASM.
The inflows can be attributed to the improvement in some of the underlying factors such as weakness in crude oil prices, improvement in rupee against the dollar and better earnings from Indian Inc, said Himanshu Srivastava, senior research analyst at Morningstar. However, there is a fair bit of uncertainty and cautiousness among FPIs at the moment, he added.
“While the underlying factors are positively inclined, the focus of FPIs would be on their sustainability over the long-term,” Srivastava said. “Trump's stance on not increasing Fed Rate has changed the rate trajectory expectations and there is a halt on increasing exposure to US debt,” Harsh Jain, COO at Groww.in, said.
“Among the emerging markets, India shows significant signs of stability as IMF forecast has raised its economic outlook on India and the yield on the benchmark bonds has gone up to 7.78 per cent in August. All these factors have attracted investors,” he added.
In the past decade, Indian stock market has outperformed that in the Chinese mainland. Since October 2008, Indian stocks have gained by 394 per cent, while the main index in the Chinese mainland has only risen 70 per cent.
“Compared with the Chinese mainland stock market, India is more mature. It has far more foreign institutional investor (FIIs) with a high tolerance for risk, whereas the Chinese market is mostly made up by speculative private investors. This makes China's A-Share market very volatile and sensitive to financial risks,” Liu Xiaoxue, an associate research fellow at the Chinese Academy of Social Sciences' National Institute of International Strategy, told Global Times.
Market watcher Ambareesh Baliga adds: The IMF said that the near-term macroeconomic outlook for India is “broadly favourable.” It expected the current account deficit to widen further to 2.6 per cent of the GDP on rising oil prices and strong demand for imports, offset by a slight increase in remittances.
The coming week is a truncated one as markets will remain closed on August 15 for Independence Day. The earnings season is near its fag end and markets will look for cues globally. Some prominent companies declaring their June quarter numbers include NBCC, Oil India and Indiabulls Real Estate. On the macro front, WPI inflation for July will be announced on Tuesday.
It rose by 5.77 per cent in June, after a 4.43 per cent gain the previous month. On the global front, US retail sales data for July will be unveiled on Wednesday. The strength in the market continues despite interim corrections, which is deemed healthy for the uptrend that looks to last at least the next two months before election jitters begin to bother the markets. Having borne the pain in the last couple of months, it’s time to ride the uptrend for the time being.