BackFIIs turn net buyers of Indian shares for 14 straight sessions
With an event-filled week lined up, and inflation data coming off the mark, analysts are skeptical if the winning streak is here to stay
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Mumbai: Foreign institutional investors (FIIs) have been lapping up Indian shares for 14 sessions in a row, their longest such winning streak since November 2014, as Asia’s third-largest economy seemed to be one of the most lucrative bets given the traction in the economy, prospects of better monsoon and improving corporate earnings.
However, with an event-filled week lined up, and inflation data coming off the mark, analysts are skeptical if the winning streak is here to stay.
For the 13 sessions between 25 May and 10 June, FIIs have invested a net of $966.20 in Indian shares, according to data from National Securities Depository Ltd (NSDL). According to provisional data from the National Stock Exchange (NSE), FIIs were buyers of Indian shares worth ₹ 212.24 crore on Monday.
“For FIIs, the other options in the emerging markets aren’t that great. We still remain strongest among BRICs. Commodities are still recovering, and the markets that are dependent on them have rallied in recent times, but are way off from what they used to be," said Gautam Trivedi, chief executive officer of Religare Capital Markets Ltd.
Since 1 April, the start of this quarter, FIIs have pumped in a net of $1.6 billion in Indian equities, the second-best in Asia, excluding Japan, after South Korea, which attracted around $3 billion of inflows in its equity markets, data from Bloomberg showed.
Meanwhile, Brazil, the peer emerging market, attracted $564.8 million in the same period. Russian shares, however, attracted $2.4 billion in the same period, outpacing India. Figures for China are not publicly available.
After many quarters, Indian companies’ quarterly earnings, were finally showing some ray of hope that the worst could be over, and the key political party at the centre, Bharatiya Janata Party (BJP), put up a decent show at the recent state elections.
A Mint analysis of 357 BSE 500 companies—excluding financial, IT and energy companies—for which comparable data was available for at least 22 quarters, pointed to a steady recovery in the March quarter. Tata Steel Ltd, Vedanta Ltd and Cairn India Ltd were also excluded due to huge one-time write-offs.
The analysis showed that net profit rose 17.42% from a year earlier in the March quarter compared with a rise of 6.93% in the December quarter, while the net sales rose 11.34% compared with a 6.40% rise in the preceding quarter.
Net profit growth in the March quarter was the best since the quarter ended 31 September 2014, while net sales growth put up its best show since the quarter ended 30 June 2014, signalling that a turnaround in earnings could be around the corner. Analysts say Indian companies are all set to post double-digit profit growth in the current financial year, having seen flattish to weak growth for a few years now.
“For India, March quarter corporate earnings were much better than expected, and that has been a shot in the arm," said Trivedi, adding that BJP’s performance in the state elections and recent performance in the Rajya Sabha elections have added to the positive sentiment.
Others seem to agree.
“India’s earnings growth was ahead of any major market. India, being a growth leader, led to allocations in its favour. Also, the probability of rate hike in the US had come off, leading to risk on trade, in favour of emerging markets like India," said Rikesh Parikh, vice-president of equities at Motilal Oswal Financial Services Ltd.
Meanwhile, the June-September southwest monsoon hit Kerala, cheering farmers and the economy, after two years of deficit rains.
The arrival of these rains marks the beginning of the 2016 monsoon season which, according to the India Meteorological Department (IMD), will bring above-normal rainfall this year at 106% of the long-period average.
“Besides, forecast of a good monsoon also brings in hope for revival of the rural economy," said Trivedi of Religare.
However, not all is well for the Indian markets. Apart from global worries of a possibility of Britain’s exit from the European Union, and the meetings of the US Federal Reserve and the Bank of Japan, some domestic woes may also bother investors going ahead.
India’s inflation rate, measured by the Consumer Price Index (CPI), accelerated to 5.76% in May from a revised 5.47% in the previous month on account of rising vegetable prices, data released after market hours on Monday showed.
Also, the possibility that global index provider MSCI may announce inclusion of China-A shares in its emerging market index at its annual review on 15 June, weighs on investor sentiment
“If MSCI announces inclusion of China-A shares, it could hamper the sentiment. The inflation numbers are also a bit worrying. We are not sure the trend of these strong FII inflows will continue," said Trivedi of Religare.
According to Parikh, if MSCI does announce inclusion of China-A shares, it may hit flows into India sentimentally. However, if that does not happen, the buying streak by FIIs may continue.
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