BackFIIs change stance, buy India stocks worth $1 bn
Quicker reopening of economy and declining covid cases fuel FII interest
PremiumAfter selling for April and most of May, foreign investors bought shares worth $1 billion in the past eight sessions, and analysts believe the buying spree could continue for a while amid hopes of a faster reopening of the economy and falling covid-19 cases.
Data from the Securities and Exchange Board of India (Sebi) showed that from 18 May to 27 May, foreign institutional investors bought nearly $944 million of equities while, according to the National Stock Exchange, on 28 May alone FIIs provisionally bought nearly ₹1,275 crore in Indian equities. So far this month, Sensex and Nifty have advanced over 5% each.
Between 23 March and 17 May, FIIs sold Indian shares worth nearly $3 billion. Year-to-date, Sensex and Nifty have climbed 7.7% and 10.4% respectively.
“We have seen early signs that new daily infections are starting to stabilize and expect the pace of vaccination to accelerate after June," said Nomura Research in its 18 May report. “This is consistent with the view of our economists, who believe the economic impact of the second wave will be relatively muted and concentrated towards the second quarter of 2021. As we believe the market will be forward looking, we expect a resumption of foreign portfolio inflows and support India’s balance of payment surplus. We are also encouraged by signs that the Reserve Bank has stepped in to limit upside volatility in USD/INR during periods of significant rupee depreciation," the report added.
Analysts believe that soft bond yields in the US and the dollar index remaining comfortable in the existing range amid the assurance of a dovish stand on monetary policy from the US Federal Reserve offer additional comfort which can essentially lead FIIs’ flow to turn favourable for India.
According to Binod Modi, head of strategy at Reliance Securities, despite the impact of second covid wave, India continues to offer promising growth, led by a likely revival in capex and a number of policy initiatives undertaken to provide a fillip to economic activity. Additionally, robust fourth quarter earnings in FY21 with encouraging management commentaries and recovery in the rupee aided FIIs flows. “Overall the structural drivers of the Indian economy remain intact – one of the fastest growing emerging economies, an under-penetrated market for many industries, prospects of rise in income, infrastructure improvement etc. Due to these factors, the Indian equity market will remain attractive and we will continue seeing strong inflows from FII. Additionally, support from RBI and government through various monetary and fiscal policy tools have increased confidence for the international investors", said Mohit Nigam, head, PMS, Hem Securities.
While the Reserve Bank of India recently expressed concerns on the equity market valuations, analysts believe that this is not the first time it has done so. However, the prospects of strong earnings are likely to help sustain premium valuations, they add.
Analysts said the release of gross domestic product data today and RBI’s bi-monthly policy announcement on 4 June, macro economic data, such as factory output and retail inflation in mid-June, will be watched closely by investors.
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