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Notwithstanding the RBI’s concern over a bubble building in the equity market and naysayers nitpicking the slow pace of the Covid vaccination drive, foreign portfolio investors have re-posed interest in Indian stocks, by buying for ₹7,967 crore in the week ended June 4.
Incidentally, these global tactical institutional investors had dumped India as the second wave of the pandemic surged and were net sellers for ₹12,613 crore in the last two months.
The equity market has been riding high on hopes of the economy bouncing back after the lockdown curbs are eased across States and with the RBI extending a helping hand through a favourable credit policy.
Domestic institutional investors, whose strategy is usually in contrast to FPIs, were net sellers for to ₹804 crore in the week ended June 4.
Second wave effect
VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said there has been a sudden turn around in FPI strategy in the last two weeks thanks to the sheer momentum in the market.
From early April till mid-May, FPIs were consistent sellers fearing a potential impact on corporate earnings due to the second wave, he said.
According to NSDL data, FPIs sold equity worth ₹9,659 crore in April and ₹2,954 crore in May and moved money to other emerging markets. But they have turned strong buyers now, picking equity worth ₹7,967 crore the last week, he added. When GDP growth and job generation in the US strengthen or inflation rises above the US Fed expectations, it will start tapering bond buying programme which could trigger selling and capital outflows from emerging markets, said Vijayakumar.
Shift to mid/small-caps
Despite FPI inflows, the Sensex gained just 163 points to 52,100 in the last one week while Nifty was up 88 points to 15,670. The indices did not get a boost as the FPIs have turned to mid- and small-cap stocks with the valuation of large caps touching sky high, said an analyst.
Moreover, the last day for payment of the call money for Reliance Industries rights issue was on May 31 and most FPIs would not have missed the opportunity, he said.
S Ranganathan, Head of Research at LKP Securities, said smart FPI investors have bought into broader market themes in India outside the index, which coupled with buying from savvy domestic investors, has reduced the valuation differential between large- and mid-caps across sectors.
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