Sensex rises on FPI flows of Rs.1.3L cr., going from 57k to 66k in three months
Gains from China’s Economic Weakness, Pause by RBI and US Fed
If your portfolio has recovered, you may feel relieved knowing that international portfolio managers—from Mauritius to Luxembourg to the US—are mostly to blame. On the strength of consistent foreign investor inflows, the sensex closed over the 66,000 level on Friday for the first time.
According to CDSL data, foreign portfolio investors (FP1) have invested more than Rs 1 lakh crore into Indian stocks so far this year after selling approximately Rs 1.21 lakh crore in 2022. The injection of Rs 1 lakh crore is the greatest in any year’s first seven months.
Despite some valuation worries, FPI inflows and the sensex, which is up 8% in 2023 thus far, are not showing any signs of slowing down. Analysts predicted that if FPI flows continued, the sensex would likely reach the 70,000 mark this year. To do so, it would only need to increase by 6% from its current level. They cautioned that there are other unknowns, including changes in US Fed policy and the expansion of the Chinese economy.
The sensex fell 6% by March from its starting point of 61.000 after FPIs withdrew Rs 34.000 crore from Indian stocks in January and February. FPI inflows, however, started to improve in March, and since then, the sensex has not only gained back lost territory but also reached new highs. The sensex is up 14% from the level of 57,500 since March, and FPIs have invested a net total of Rs. 1.3 lakh crore.
According to V K Vijayakumar of Geojit Financial Services, “This ‘U’ turn in FPI flows has been the primary driver of the strong rally in the market since the March low FPIs have been steadily buying in financial services, automobiIes, capital goods, and construction.” He continued, saying that values are costly as a result of the ongoing FPI buying, but they have not yet reached “bubble” levels.
Why have FPIs resurfaced? According to analysts, the pandemic’s good impact on the Indian economy and the weakness of the Chinese economy both had a significant effect. In contrast to China, where FPIs appear unwilling to deploy extra flows due to growth worries, India appears to be an oasis in the desert, as evidenced by the flows that are entering the Indian market in anticipation of significant growth, according to Lakshmi Lyer. CEO of Kotak Investment Advisors (investment & strategy).
The US and Indian central banks’ pause in raising interest rates is another significant element. Important drivers were the indications that India’s cycle of rate hikes was coming to an end and the economy’s stronger position relative to other emerging markets. Mayank Mehra, a principal partner and Smallcase manager at the financial consulting firm Craving Alpha.
FPI inflows are anticipated to be consistent for a few months, however they are dependent on a number of factors. Foreign investors may reevaluate their positions if the Chinese government announces a fiscal stimulus package, according to Srikanth Subramanian, CEO of investing platform Kotak Cherry.