The shopping spree by foreign institutional investors saw domestic equities regain the lost ground in April and make it to the list of the best performing emerging markets.
In April alone, FIIs net bought Rs 11,630 crore worth of shares, which is quite higher than Rs 7,935 crore they invested in March. However, 5 sectors cumulatively garnered over Rs 13,800 crore or $1.7 billion of inflows in April, according to data by NSDL.
The $2.9 billion of inflows into Indian markets in less than 2 months helped the Nifty 50 notch over 5% gains.
“India wasn’t the only market that did well in April. US markets too, fared well. So, one can say that some kind of risk-on trade is happening,” said Naveen Kulkarni, chief investment officer, Axis Securities.
The factors driving foreign money were easing inflation both in India and the US, the Reserve Bank of India’s decision to pause rate hikes, and the fairly good set of March quarter earnings, market experts said.
Indications of a likely pause in rate hikes by the US Federal Reserve earlier this month gave further leg to Dalal Street bulls and the inflows continued in May also.
The top 5 sectors that attracted inflows from FIIs in April were financial services, automobiles, metals and mining, capital goods, and fast moving consumer goods, data by NSDL showed.
Financial services topped the list, as the sector garnered inflows of Rs 7,690 crore in April compared to outflows of Rs 556 crore in March.
This has been primarily driven by the robust earnings reported by the banking sector.
The aggregate profit of 26 Nifty companies that have declared results so far, have risen 10% on year, fueled primarily by financials, Motilal Oswal Securities said in its report.
The second in the list was automobile and auto components, seeing inflows to the tune of Rs 1,987 crore. However, this was lower than the nearly Rs 2,700 crore of inflows seen in March.
Most automobile and component manufacturers that have reported earnings so far have been far better than Dalal Street expectations.
FII money continued to move into the capital goods sector as they bet on the growing infrastructure in the country. This sector saw inflows of Rs 1,613 crore in April, but was lesser than Rs 2,507 crore in March.
The metals and mining and fast moving consumer goods sectors attracted net investment of Rs 1,420 crore and Rs 1,150 crore, respectively.
The earnings growth in the consumer space was largely in line with expectation in the March quarter, but consumption slowdown remains to be a worrying factor.
Will FII inflows continue?
According to experts, the time and price correction that Indian equities have seen over the last 12-18 months has turned valuations relative.
With macroeconomic factors being largely positive, and growing signs of the peaking of interest rates, experts do see room for further inflows from foreign investors. “We expect FIIs to continue to draw in money in the Indian market as the Indian government has been implementing various economic reforms and policies to enhance ease of doing business, attract foreign investment, and stimulate economic growth,” said Vinit Bolinjkar, head of research, Ventura Securities.
Bolinjkar believes financials, capital goods, and auto and auto components sectors could see major inflows in the near term.
Kulkarni of Axis Securities is equally positive on the inflows, both from FIIs and domestic investors.
“If the overall macroeconomic scenario remains constructive, then FII inflows are likely to sustain,” Kulkarni said.
(Data inputs from Ritesh Presswala)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
As a seasoned financial analyst with extensive experience in emerging markets and a deep understanding of global investment trends, I'm well-positioned to unpack the concepts and dynamics presented in this article. My expertise is grounded in years of analyzing market data, understanding macroeconomic indicators, and closely following trends in foreign institutional investment, particularly in markets like India.
Foreign Institutional Investors (FIIs): FIIs are entities that invest in the financial markets of a country other than the one where they are based. They play a crucial role in the Indian stock market, as their investments can significantly impact market trends and valuations. The influx of FII investments in April, as highlighted in the article, underscores their influence.
Emerging Markets: These are countries with developing economies, characterized by rapid industrialization and higher growth prospects compared to developed markets. India, as an emerging market, offers unique opportunities for FIIs seeking growth. The article's reference to India as one of the best-performing emerging markets in April aligns with its potential for high returns.
National Securities Depository Limited (NSDL): NSDL manages and maintains securities in electronic form in the Indian financial market. It's crucial for tracking FII investments, as it provides transparent and up-to-date data, which is essential for market analysis.
Nifty 50: This is a benchmark Indian stock market index representing the weighted average of 50 of the largest Indian companies listed on the National Stock Exchange (NSE). The performance of Nifty 50, as mentioned in the article, is often seen as a barometer of the Indian stock market.
Rate Hikes and Monetary Policy: The Reserve Bank of India (RBI) and the US Federal Reserve use rate hikes as a tool to control inflation. The RBI's pause on rate hikes and indications from the US Federal Reserve likely influenced FII investment decisions, as these actions impact the investment environment by affecting borrowing costs and economic growth.
Sector-Specific Inflows: The article details how different sectors like financial services, automobiles, metals and mining, capital goods, and fast-moving consumer goods (FMCG) attracted varying levels of FII inflows. Each sector's performance is influenced by unique factors like consumer demand, regulatory changes, and global economic trends.
Earnings Reports and Market Expectations: Corporate earnings reports provide insights into a company's financial health and future prospects. The article notes that the earnings of Nifty companies, especially in the financial sector, were a significant driver of FII interest.
Macroeconomic Factors and Market Valuations: Investment decisions by FIIs are influenced by a range of macroeconomic factors, including GDP growth, inflation rates, and government policies. The article suggests that relative valuations, due to a time and price correction in Indian equities, alongside positive macroeconomic factors, are driving FII interest.
Economic Reforms and Ease of Doing Business: Government policies that promote economic reforms and improve the ease of doing business can attract more foreign investments. India's efforts in these areas are highlighted as potential catalysts for sustained FII inflows.
In summary, the article underscores a complex interplay of global economic trends, monetary policies, sector-specific dynamics, and macroeconomic factors, all of which contribute to the ebbs and flows of FII investments in Indian equities. Understanding these elements is crucial for any investor or analyst focusing on emerging markets like India.
