Dalal Street is possibly having one of its best times in 2023, as its biggest bull – foreign institutional investors – has pumped more than $2 billion into domestic equities in just five days.
In the week gone by, FPIs have net bought equities worth Rs 21,641 crore ($2.6 billion), compared with the net purchases worth Rs 13,847 crore done in the preceding week.
The unprecedented inflows drove a 1,200-point rally in benchmark Sensex, taking it above the 71,000-point mark.
The biggest immunity shot for FPIs in the week gone by was a dovish US Federal Reserve as the central bank guided for interest rate cuts in 2024 after tightening them for more than a year.
The US central bank left the federal funds target range unchanged at 5.25-5.50% at the end of its last meeting for the year last week and guided for a cumulative 75 basis points of rate cuts in 2024.
Fed’s guidance saw treasury yields and the dollar index slump and triggered a shift in bets to equities.
In December so far, their net inflows have touched nearly $4 billion, equivalent to that seen in July this year.
The inflows were initially driven by the favourable assembly poll results which gave the Bharatiya Janata Party a thumping victory in key states of Hindi hinterland.
Much of the FPI inflows found their way into frontline sectors such as banks and information technology sectors. These two sectors are over-owned by FPIs.
Besides, a slew of secondary share sales in some of the leading companies also attracted foreign investor interest.
The Nifty Bank index gained nearly 2% last week, while the Nifty IT index surged 7%, clocking its best-ever weekly gains in over three years.
Given the favourable domestic and global factors, most experts see sustained capital flows into equities in the near term.
“India is one of the top investment destinations of FPIs. There is a near consensus now in the global investing community that India has the best prospects among the emerging economies for sustained growth for many years to come,” says V K Vijayakumar, chief investment strategist at Geojit Financial Services.
Not only equities but even bonds are likely to attract a lot of foreign money considering the inclusion of India into the JPMorgan Global Bond index and the easing of bond yields.
Krishna Kumar Karwa of Emkay Global Financial believes that once interest rates start correcting globally, it should give an impetus for flows to move out again from the US to other emerging markets, and India could be a prime beneficiary of that.
“If you feel that the US economy is stabilising or rather there is a soft landing, then the whole economic atmosphere over there or rather all the IT companies should see positive benefits in terms of all the deferred decisions finally being taken,” Karwa said.
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