Primary issuances attract most FPI inflows, MFs turn to mid-caps

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SME Times News Bureau | 24 Sep, 2020
Inflow of foreign portfolio investments (FPI) surged last month with around $6 billion, or around Rs 47,000 crore, of net investments by overseas investors with a majority meant for primary issuances of shares.

Around 63 per cent of net FPI flows last month were into primary issuances, according to a report by ICICI Securities.

Interestingly, last month, India outperformed other emerging markets in terms of inflows. The report also said that domestic institutional investments (DII) too had positive flows towards primary issuances, although the secondary flows continued to be negative with an outflow of $1.5 billion.

"FPIs deployed a relatively high $6 billion in Aug' 20 into Indian stocks but the higher proportion of the flows went into absorbing primary issues," the report said.

As per the report, FPIs were buyers across sectors, except for selling in consumer staples and telecom. The top bought sectors were banks (Rs 9,200 crore), consumer discretionary (Rs 2,100 crore), and auto (Rs 1,300 crore) and pharma (Rs 1,300 crore).

Jyoti Roy, DVP-Equity Strategist, Angel Broking Ltd, said that Indian equities closed in the green for the third month in a row in August with the benchmark Nifty up by 2.8 per cent. The rally in August was driven by FII flows which stood at Rs 47,080 crore which is the highest during the calendar year, Roy added.

According to Roy, positive global cues, US Fed-induced liquidity, weak dollar index, better than expected Q1 FY2021 numbers, along with continued improvement in underlying economic conditions both globally and India, led to such large inflows in the month of August.

Amit Jain, Co-founder and CEO of Ashika Wealth Advisors, said: "The inflow had come on hope that by December, we may have vaccine for the coronavirus & market is already started discounting earning of the financial year 2021-22 in hope of early economic revival."

Further, mutual fund flows into mid-cap stocks improved further in August 2020 while outflows were largely seen from large-caps and marginal selling in small-caps.

The report noted that significant outperformance of small and mid-caps over NIFTY50 in August is continuing into September especially post the SEBI circular on multi-cap funds.

Small and mid-cap category could attract institutional flows due to a range of factors including continued global liquidity post the new "flexible inflation targeting" framework of the US Federal Reserve and regulatory push wherein the latest circular by the SEBI mandates the largest category of equity schemes offered by MFs to hold minimum 25 per cent of AUM in each of the mid and small-cap stocks category, among others.

Top bought sectors by MFs were private banks, IT, other financials and telecom. MFs top sold sectors were energy, consumer staples and discretionary, metals and auto.

There has, however, been a dip in FPIs in September and analysts say the upcoming US elections and the resurgence of Covid cases across the world, especially Europe, has played a role.

"The market is factoring in election results of the US and the markets may remain volatile for the next couple of months," Jain said.

Angel Broking's Roy also said that with the recent downward bias in global markets due to surge in infections globally, especially in Europe, the FPI outflow is likely to continue in the short term.

The recent bearish trend worsened on Thursday as the Indian stock market witnessed its worst performance in around four months. The BSE Sensex crashed 1,114.82 points to settle at 36,553.60 points.