Nifty@record high: FII buying crosses $10 billion mark in FY24

After being net sellers in the last two financial years, FIIs have been singing the India song since March 2023. In April, foreigners bought $1.4 billion of Indian equities and followed it up with $5.3 billion buying in May. With this month’s buying of $3.7 billion, the total FII buying is now around $10.5 billion, shows NSDL data.

India is believed to have received the highest equity inflow among emerging markets in June.

Domestic institutional investors (DIIs), on the other hand, have been using the opportunity to book profits and were net sellers last month. The total DII buying is just Rs 1,785 crore so far in FY24.

“Indian equities continue to outperform both emerging and developed economies, helped by strong FII equity flows (highest among select EM in June), pick-up in MF equity flow, benign crude oil prices, continued demand traction with signs of rural and capex cycle recovery, and the optimism and euphoria around Indian PM’s visit to the US,” Antique Broking said.

Data from Kotak Institutional Equities shows that net ETF inflows stood at $3.3 bn in the first four months of calendar year 2023. “We assume the trend of passive flows would have continued in May and June, given the large net FPI inflows (around US$400 mn) on the MSCI rebalancing day (May 31). Passive inflows would be significantly higher than this figure given the US$3 bn of gross purchases by FPIs on May 31 alone. We assume ‘smart’ (active) investors would have bought ahead of rebalancing day and sold on rebalancing day,” said Kotak Equities’ Sanjeev Prasad.

The Indian market has been underperforming most developed markets and a few emerging markets.”The Indian market has seen a broad rally in the past few months but headline indices have seen more modest performance (see Exhibits 1-2). We are not very clear about the reasons for the rally and the divergent performance,” said Prasad, adding that there is no particular reason for the excitement in midcap and smallcap stocks which have significantly outperformed largecaps.

Indian equities are trading at 19.5x 1-year forward P/E multiple as against a long-term average of 18.4x.

“The Indian market valuations may not look very expensive on headline basis versus recent history and bond yields. However, the cheap valuations and the large contribution of banks to overall profits of the headline indices may be holding down overall valuations,” he said.

(Data inputs from Ritesh Presswala)

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