FPIs turn net buyers of equities, drive markets higher

Expectations from the Union Budget and strong macroeconomic growth are among key factors that will guide capital flows from overseas investors, say analysts.

Expectations from the Union Budget and strong macroeconomic growth are among key factors that will guide capital flows from overseas investors, say analysts.
Expectations from the Union Budget and strong macroeconomic growth are among key factors that will guide capital flows from overseas investors, say analysts.

By Ruchit Purohit

The equity markets witnessed a sharp rebound since the beginning of the new calendar year as foreign portfolio investors (FPIs) turned net buyers after relentless selling in the previous three months. Thanks to the inflows, the Sensex and Nifty closed above 60,000 and 17,900 levels, respectively, on Wednesday. Global investors have bought shares worth $579 million or Rs 4,308 crore up to January 5, data from NSDL show. Expectations from the Union Budget and strong macroeconomic growth are among key factors that will guide capital flows from overseas investors, say analysts.

However, the gross buy and sell figures continue to remain significantly lower than the usual average. According to analysts, the calendar year has just begun, and to identify a clear trend, one should wait for some more time to see if fresh money is being brought into the markets.

“While FIIs have turned buyers in January, activities are still significantly lower. The gross buy and sell figures are still significantly below than the average. Thus, one should wait for a week or so to gauge the trend and see if fresh money is coming again. Nonetheless, domestic flows consistency is a key factor, which we believe, will drive markets as seen during the last couple of years,” Pankaj Pandey, head – research, ICICIdirect, told FE.

Further, inflows from global investors will be comparatively lower than the preceding years and will remain muted amid a reversal in the interest rate cycle globally due to inflationary pressures, along with other factors. On the other hand, earnings growth, vaccination progress in the country and economic resilience will continue to provide firm support, said experts.

“We believe FPI flows may revive, as the Indian economy’s relative performance stands out among peers, partly justifying the above-average valuations. Revival in FPI flows would be positive for large caps, particularly banks,” Jefferies said in a recent note.

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