FII inflow consistency expected to further lift India's stock markets

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SME Times News Bureau | 15 Dec, 2020
Even as lean volume season is about to commence globally, analysts predict consistent foreign fund inflows to further boost India's equity indices in the short-to-medium term.

Market observers cite expectations of a massive US stimulus, along with record low global interest rates as well as easy monetary policy being followed by international central banks as factors leading FIIs into India's equity market.

Besides, foreign investors are eying prospects of a faster economic recovery in India amid subsiding Covid-19 cases.

Consequently, FIIs have pumped in around Rs 5,000 crore in just the last two sessions. They had invested over Rs 15,000 crore last week and Rs 90,000 crore in the last 45 days.

Till now in FY21, FIIs have invested nearly Rs 2 lakh crore. This is the highest inflow by FIIs in any financial year.

On a comparative basis, in FY20 till December 15, they had invested Rs 45,000 crore.

"Many fund managers are looking to diversify away from US assets and putting money to work in international assets," said Devarsh Vakil, Deputy Head of Retail Research at HDFC Securities.

"We are also witnessing selling in other safe-haven assets and that is why emerging markets are attractive for US dollar-denominated investments. India is getting its fair share from this pool of capital."

In terms of monthly basis, FII inflows during November stood at Rs 60,500 crore which was higher than the previous high by more than Rs 25,000 crore.

Furthermore, huge FII inflows continued in December having crossed Rs 30,000 crore so far in December.

"FIIs have been pouring money into emerging markets like India during the last few months. The primary reason for this is the declining dollar and expectations that the decline would continue in the coming months," said Geojit Financial Services Chief Investment Strategist V.K. Vijayakumar

"India has become a major destination for FII investment due to India's improving fundamentals. Economic growth and corporate earnings in India is expected to bounce back sharply in FY21."

As per regulatory data, FIIs have pumped in large amounts of capital in financial services and IT companies.

"We have observed that FIIs are majorly interested in PSU banks because according to data from NSDL, FII hold assets worth Rs 429,859 crore in banking and other financial services," said Ashis Biswas, Head of Technical Research, CapitalVia Global Research.

"Another sector that FIIs are probably betting on is the cement and construction material sector as the incremental unlocking and standardisation of supply chain problems led to volume recovery to satisfy underlying demand and inventory refilling."

"The recovery in cement demand was due to high rural and semi-urban demand and a pick-up in September in government infrastructure and road projects."