After selling in December, January and February, FIIs have now seemed to reverse the trend, turning net buyers for the last six trading days in a row. FPIs have net purchased Indian equities worth about Rs 4,738 crore in the last six trading days. As this trend gathers momentum, FIIs have been buying in autos, financial services, capital goods, metals and mining but have been selling IT. Experts believe that the period of sustained FII selling might be coming to an end.
Factors driving FII inflows
FIIs have returned to the domestic equity markets as the dollar index declines and the American bond yields soften. Additionally, the rupee has appreciated, to fall under the 81.75 level. With the latest correction, Indian valuations have also turned attractive. FPI inflows will be heavily influenced as a result of the Q4 earnings season that is set to begin 14 April onwards. According to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, “more money is likely to flow into financials, capital goods and autos and auto components”.
He added that since FPIs started investing in the country in 1993, this marks the very first time that FIIs have sold consecutively for two financial years. The foreign investors have sold equity worth Rs 1,40,010 crores in the fiscal year 2022, and Rs 37,632 crores in the fiscal year 2023. V K Vijayakumar said that this trend is likely to reverse in FY24 since India has the best growth potential this fiscal. Even though Indian valuations are relatively expensive, they have turned reasonable now and in tune with the long-term premium enjoyed by India.
Derivative Outlook
“FIIs increased their future index long position holdings by 7.51%, increased future index shorts by -0.68% and in index options by -48.10% in Call longs, -40.29% in Call short, -51.40% in Put longs and -63.79% in Put shorts”, stated Anand James, Chief Market Strategist, Geojit Financial Services.
Outlook for Nifty, Sensex
While the markets have seen an upward bias for five sessions, excluding Monday’s day of trade, traders will exercise caution and remain guarded. This is a result of the interest rate hike cycle and the hawkish stance perpetuated by central banks across Europe and US. However, if FII buying remains upbeat and upcoming economic and industry data is positive, the current optimism could continue further, said Prashanth Tapse, Senior VP (Research), Mehta Equities.