FIIs keep faith in Indian stocks

Foreign institutional investors (FIIs) have continued their buying spree of Indian equities, lapping up stocks worth more than $2.8 billion so far in December amid optimism about the availability of a covid-19 vaccine and faster-than-expected economic recovery.

Foreign investors bought $2.81 billion of Indian equities between 1 and 9 December. In November, they had bought nearly $9.55 billion.

So far this year, they have bought $18.92 billion.

The Sensex and Nifty have risen nearly 4.5% each in this period, while in November they advanced 11.4% each. The Sensex and Nifty have climbed nearly 75% since their March lows and nearly 12% each since the start of the year.

The continued buying interest by FIIs is because of abundant liquidity, developments on the vaccine front, signs of economic recovery, and expectation of stimulus packages from developed countries, according to market experts.

FIIs have been bingeing on Indian equities, with domestic institutional investors (DIIs) having sold nearly ₹16,260 crore in the first eight sessions of December. In November, DIIs sold shares worth ₹48,319 crore.

So far this year, DIIs have sold a net of ₹20,470 crore in stocks.

“We believe the speed of a vaccine rollout and its impact on consumer confidence will be the key driver of the pace of India’s economic recovery. In our base case, we expect India’s real gross domestic product (GDP) growth to rebound 11.5% year-on-year in the fiscal year 2022 estimates versus a contraction of 10.5% year-on-year in FY21 estimates,” said a report by financial services company UBS.

“We expect a bounce-back in growth in FY22E as a vaccine may improve confidence in the economy, and the willingness to spend and invest before herd immunity is fully achieved. We expect the equity market to look past the vaccination phase, even if it is stretched to more than a year, and focus on the steady-state beyond,” the UBS report said.

“India market valuations are inexpensive relative to emerging markets, and we retain our constructive stance,” the report added.

The recent dovish policy from the Reserve Bank of India (RBI) has indicated that it continues to prioritize growth, and this has assuaged market concerns of a sudden withdrawal of excess liquidity.

“With the growth pickup in its infancy and pandemic-related risks still prevalent, we expect the RBI to keep rates on hold and maintain its accommodative forward guidance for the foreseeable future,” said a report by financial services company Nomura.