Nifty @ record high: Foreign investors pour in nearly $3 billion on Dalal Street this week

The fresh round of inflow comes in even as 93% of Wall Street traders are presuming that the US Fed will hike interest rates by 25 basis points during the FOMC meeting on July 25-26.

If this trend continues, monthly FII flows in July will exceed the figures in May and June, which were $5.3 billion and $5.7 billion, respectively.

“This ‘U’ turn in FII flows which were negative in January and February this year has been the primary driver of the strong rally that we are witnessing in the market since the lows of March,” said Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Last month, financial services sector saw net inflows of Rs 19,229 crore ($2.3 billion), which is nearly 9% higher from May. The sector which saw the second highest inflows in June from FPIs was automobiles and auto ancillaries at Rs 5,821 crore. However, this was lower than the Rs 8,700 crore of inflows witnessed in May.

“FII strategy is focussed more on country-specific factors rather than sectoral prospects within a country. That’s why they adopted the ‘Sell India, Buy China’ strategy in Jan and February. During these 2 months, FIIs sold financial services for Rs 15,744 crores. Now, pursuing the ‘Sell China, Buy India’ strategy, the same FIIs have bought stocks in financial services for Rs 19,229 crores in June alone and this buying trend continues,” Vijayakumar said.

With Nifty being at record high levels, valuations too have turned expensive.Nifty one-year forward PE at 18.7x is above the 10-year average of 17.4x, assuming 20% FY24 earnings growth, but well below the peak of 23x in October 2021.

“The global market is closely monitoring the US 10-year bond yields, which have surpassed the psychological level of 4%. This rise suggests that the US Federal Reserve may implement more rate hikes in the near future. Consequently, there may be a cooling down in FII flows, potentially leading to market consolidation or a correction,” said Santosh Meena, Head of Research, Swastika Investmart.

Derivative data shows that FIIs currently have a long exposure of 70% in index futures, which suggests the market may be slightly overbought. However, the put-call ratio has dipped to the 0.89 mark, indicating an oversold territory.