Foreign institutional investors (FIIs) seem to be regaining confidence in the Indian markets, something that was lacking during the earlier part of this calendar year. On a net basis, FIIs infused Rs 22,585 crore in Indian equities via the stock exchanges in 14 sessions between April 26 and May 16. Including primary market figures, the overall investment was Rs 33,714 crore ($4.12 billion), shows data from CDSL. This run is equivalent to another 14-day run last year that saw Rs 52,464 crore ($6.6 billion) coming in between July 28 and August 19, 2022.
What makes this impressive is that this is the longest streak of FII inflows in two and a half years — the last being a 19-day streak from November 26 to December 23, 2020 that saw the influx of Rs 59,645 crore ($8.1 billion). FIIs were net buyers to the tune of Rs 149.33 crore on Wednesday, as per provisional data on the exchanges (CDSL reports figures with a lag of one day).
Analysts say that in the earlier part of the year, foreign investors were spooked by unfavourable valuations and the turmoil in Adani Group stocks following the Hindenburg report. This led them to be cautious of Indian equities.
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This is evidenced by the fact that on a year-to-date basis, FIIs have been net sellers to the tune of Rs 28,476 crore via the exchange route. However, including primary market activity, there has been a net inflow of `17,315 crore ($2.11 billion).
UR Bhat, co-founder and director at Alphaniti Fintech said: “With the economy in good shape, the domestic-focused companies are reaping the benefits, such as capital goods, banking and auto, a theme that has interested foreign investors.”
Added Deepak Jasani, head of retail research, HDFC Securities: “FIIs were underweight on India, fearing a heavy correction that did not happen. Hence, they are now coming back to their earlier positions. The pause in the interest rate cycle, which will likely to continue, thanks to the encouraging CPI numbers, is another boost.”
He pointed out that many fence-sitters also turned bullish on India, thanks to the healthy results by large-cap firms, which were more or less in line with expectations. According to Morningstar, the decline in Chinese markets, following the zero-Covid policy and ensuing lockdowns made them a “more appealing” prospect from a value standpoint. This prompted FIIs to shift their focus from economies with relatively high valuations, like India, to China.
A comparison with other Asian EM peers, however, shows that India has stood out. Data shows that during the same 14-day period, Taiwan has seen a flight of $1.8 billion, Thailand $249 million, Indonesia $20 million, Malaysia $85 million, and The Philippines $49 million. Only South Korea with $89 million of inflows has been in positive territory.
This is despite South Korea and Taiwan having raked in $6.44 billion and $4.35 billion YTD, and Indonesia $1.06 billion. Thailand has seen over $2 billion in outflows, while Malaysia and The Philippines have lost over $500 million YTD.
“Given a more stable economy in relative terms, better macro condition, and prospects of higher economic growth, FIIs chose to look beyond various challenges and invest in Indian markets, in expectation of potential better returns,” said the Morningstar report.
The easing of concerns about the banking crisis abroad, rising expectations that the Fed may go slow on rate hikes, and consolidation in Indian markets leading to rationalisation in valuations, has brought FIIs back, it added.
China had, however, seen over $48 billion in inflows until the March quarter, while Japan saw the influx of $16.7 billion up to May 5 (China and Japan don’t report numbers on a daily basis).
“India has both political and fiscal stability, and manages its issues well, be it in any sector. We have also seen decisive mandates in elections, and good coordination between the Centre and states. Not only that, Indian firms have good corporate governance standards, which reflects in their valuations,” said Bhat.
He also emphasised on the fact that most of India’s EM peers are large exporters to developed markets, while India’s percentage of exports is lower. Agrees Jasani, who said that with many peers having elections this year like Sri Lanka, Thailand and Turkey, FIIs now see India as the more attractive option.
Between April 26 and May 16, both benchmark indices gained 3%, with the Sensex jumping 1,800 points and the Nifty by 517.
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