It’s a November blockbuster for Street with surging FPI flows

Mumbai: Lost for words? Have you run out of superlatives in describing the surge in stocks, which just months ago were seemingly caught in the cauldron of gloom? Well, borrowing from Pink Floyd, thank cash-rich overseas investors — and India’s eye-popping resilience — for hauling the markets beyond the tunnel-vision reality of Covid-induced doom and despair.For starters, November has been a blockbuster month for overseas investments into Indian equities. More foreign funds have anchored in Mumbai than in any other emerging market, while only Japan in the OECD stands ahead of India.79400020A V-shaped recovery prompted FPIs to pour in Rs 55,500 core in Indian stocks during the month so far, stretching their record to six months of purchases of the seven in FY21.The gross purchase to redemption ratio of FPIs was 1.4 in November, a 32 per cent premium to the long-term average. There were only 10 months in the past 12 years when the ratio was at or above 1.4. FPIs had assets under management (AUM) of $448 billion as of November 15 and accounted for a fifth of India’s market capitalisation.So, what’s the upshot of all this?The Nifty is now the second-best performer globally among all indices after Nasdaq 100 since April 1, with 58 per cent returns. The tech-heavy Nasdaq 100 rallied 61 per cent, while Korean, Brazil, Japan and Taiwan equity benchmarks gained between 40 per cent and 55 per cent. With the sharp rally, Nifty is currently trading at a forward PE of 27 times, the most expensive among emerging markets and third costliest among all — just behind the US and France.Nifty’s last 1,000-point rally took just 13 trading sessions through which foreign funds pumped in nearly Rs 50,000 crore, compared with Rs 26,000 crore of selling by domestic institutions.Consensus earnings estimates have seen consistent upgrades since July, and are now 10-15 per cent higher than the emerging market index for the next two fiscal years. Several MNC brokerages have raised India’s rating to ‘overweight’ from neutral or underweight over the past two months. Morgan Stanley expects the Sensex to hit 50,000 by December 2021, compared with the earlier forecast of 37,300 by June 2021.Ownership of FPIs in Nifty has increased from 23.49 per cent as on September 30, 2020, to 23.85 per cent currently, on the back of massive net inflows, while holding by domestic institutional investors declined from 15.39 per cent to 14.85 per cent. To gauge how the future would pan out, we must look at what the dollar index does.“The dollar Index is consistently falling and currently it is nearer to the crucial support of 91.99. In case the dollar breaks the level of 91.99, then it would generate more buying flows for the emerging markets,” said Shrikant Chouhan, analyst, Kotak Securities.Moreover, FPIs have shown greater interest in the secondary equity market in November as 93 per cent of the equity inflow or $ 6.6 billion was through this route. Inflows via stock exchanges in November were the highest ever in a month. Of the $34 billion invested by FPIs in the past five years, 69 per cent was through the primary route. The ability to claim a larger stake without incurring high transaction cost and price impact make the primary route more popular.

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