FPI-driven market bets on Fed pause
The HDFC twins, Bajaj Finance, Reliance Industries and Adani Enterprises contributed to the bulk of Thursday’s index gains, with HDFC Bank hitting a record high of 1,734.45 intraday, before closing up 2%.
MUMBAI : The benchmark Nifty and Sensex hit multi-month highs led by FPI buying in financial and commodity stocks as investors priced in a pause by the US Fed after its 10th successive hike on May 3. Their buying catapulted HDFC Bank to an all-time high on Thursday. A pause by the Fed is positive for EMs like India, as US investors hunt for EM assets which yield them higher returns than home-grown ones.
The HDFC twins, Bajaj Finance, Reliance Industries and Adani Enterprises contributed to the bulk of Thursday’s index gains, with HDFC Bank hitting a record high of 1,734.45 intraday, before closing up 2%.
The Nifty gained 0.92% to close at 18255.80, the highest close in four and a half months, while the Sensex ended higher 0.91% at 61749.25, a five and a half month high. FPIs purchased a provisional ₹1,414.73 crore worth of shares while DIIs bought a provisional ₹441.56 crore.
In the fiscal year through May 4, they have purchased shares worth ₹22,481 crore. They sold shares worth ₹37,632 crore in FY23, NSDL data shows.
The FPI buying is expected to continue apace and drive up the Nifty toward its record high of 18887.6, with hiccups on the way, analysts said.
“The markets have read the Fed commentary to mean it’s pausing, given the unintended consequences of the rate hikes amid high inflation," said Andrew Holland, CEO, Avendus Capital Public Markets Alternate Strategies LLP, referring to three US bank collapses in recent times. “I expect the Fed to begin cutting by year end and the RBI to start cutting rates by October."
Holland has a Nifty target of 20,000 by the year end, interspersed with volatility.
The buying by FPIs since March has driven the Nifty up 8.5% from the 20 March low of 16828 through the 4 May closing.
“The Fed language hints at a pause and that’s good for EMs like India, where FPI have been adding up stocks in which they are already invested in," said Bhavesh Shah, MD, Equirus. “The resilience of the Indian economy and the relatively lower volatility than AE markets are draws for FPIs."
Rohit Srivastava, founder of IndiaCharts, expects the Nifty to test its record high of 18887.6 over the next few months.The Bank Nifty closed at 43685.45 , just 1% off its record high of 44151.80. Gold on the MCX hit a lifetime high of ₹61,346 per 10 gm, ex 3% GST, on investment buying in US following reports that the US government could run out of money to pay its bills by 1 June. “This encouraged safe haven buying although jewellery demand in India will be affected by the high price ," said Rajesh Palviya, VP at Axis Securities .
Interestingly, the DII buying has slowed substantially in the past two months. While FPIs bought ₹22,481 crore in the fiscal year so far, DIIs have purchased a lesser ₹1,239 crore, according to Mint.
To be sure DIIs have been the bulwark of the market, buying when the FPIs sold between 1 December and 20 March, when the market tanked 11% from a record high of 18887.6 . This led to the shareholding on NSE companies rising.
“The share of Domestic Institutional Investors (DIIs) along with Retail and High Net-worth Individual (HNI) investors in companies listed on NSE reached yet another all-time high of 25.72% as on March 31, 2023, from 24.44% as on December 31, 2022," according to a report by primeinfobase.com.
The gap between FII and DII holding decreased to its lowest level ever in the March quarter, with DII holding being just 20.46 % lower than FII holding (on December 31, 2022, DII holding was 24.30% lower than FII holding), it added. The widest gap between FII and DII holding was at the end of FY15 , when DII holding was 55.45% lower than FII holding. The FII to DII ownership ratio also declined to an all-time low of 1.26 as on 31 March 2023 down from 1.32 as on 31 December 2022.
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