JOIN USIndian equity markets on a high with FPIs flooding
Indian equity markets have emerged the third largest destination for foreign portfolio investors (FPIs) to put their money into during the last six months. The central bank’s data shows that India is behind only China and Brazil among the emerging markets.
Analysts point out that this is majorly because FPIs find the rupee to be more stable, earnings trajectory looking good among other reasons.
“India has witnessed the highest inflows from FIIs in the last two years compared to other emerging markets, $14 billion in 2019 and $23 billion in 2020.
In fact, some of the major countries including Korea and Taiwan witnessed outflows in the last two years,” Joseph Thomas, Head of Research, Emkay Wealth Management, notes.
The central bank has noted that FPI equity valuations have risen in financial services, software and computer services, oil and gas, metals and mining, consumer durables, chemicals and capital goods sectors, which together account for 64 per cent of the total increase in these valuations during 2021 so far.
Analysts say the last year has been that of companies into digital transformations and other services.
“These sectors are fundamental to economic growth and development, and therefore, any advancement in the economy necessarily has to be based on improvements in these sectors, and more so, in financial services. Also, financial services has a prominent share in the index composition,” Thomas adds.
Furthermore, the RBI’s analysis states that India accounted for 2.6 per cent of the world market capitalisation (m-cap) in June 2021; in fact, India’s m-cap rose 66 per cent in one year to $3.02 trillion in June, outpacing the 44 per cent growth in the global market cap.
The market value of Indian equity holdings of FPIs touched a record $610 billion by mid-June 2021, but moderated to $592 billion in the second fortnight of the month, but still up 14.4 per cent over end-December 2020 and 71.9 per cent from its level a year ago.
Sensex and the Nifty had gained 8.3 per cent and 10.8 per cent respectively as against 6.9 per cent by the MSCI Emerging Markets index and 12.5 per cent by the MSCI World index till July 8, 2021.
Analysts feel that the best is yet to come for the Indian equity markets. “While the market is always forward-looking, the current rally is driven by an excellent earnings season. Strong quarterly results of few prominent market players like Infosys, L&T have come as a big positive for the markets.
Further, the absence of a nationwide lockdown and the limited impact of lockdowns announced by the states have reduced anxiety, and there is optimism surrounding the vaccination programme,” Gaurav Garg, Head of Research at CapitalVia Global Research says.