Buoyancy in markets fulled by sustained FPI investments

Buoyancy in markets fulled by sustained FPI investments

IANS Photo

New Delhi, July 30 (IANS) Markets have been on a roll over the last four months since they made a bottom in the second fortnight of March 23. In the process, markets have hit their lifetime highs and are now looking to cross Mount 20K on the Nifty.

Readers would recall that the level of 20K was missed by 8 points on July 20. Results season for the first quarter of FY 23-24 are currently on and the scorecard is not all that positive.

Results have been a mixed bag. The buoyancy in the markets is spearheaded by FPIs who have been pouring money into the markets on a sustained basis. Barring a brief period when they were selling in India to buy stocks in China, the situation has now reversed completely.

Looking at the GDP, economy and the resilience of the Indian economy to tough global conditions and challenges, its back in favour of India. It is this state of the economy that is bringing money to the Indian stock markets. It may be said that like the rains, money too is pouring.

Private Equity Investors are selling large stakes in listed entities and cashing in on huge profits. In most cases the size of secondary sale through the ‘offer for sale’ mechanism is many times the original issue.

This ensures two things going forward. The first is the fact that the PE has disposable funds to re-invest in other businesses and companies in the country, and second that the stock is absorbed by other financial institutions whether they are domestic or foreign quite easily.

Many promoters have also used the opportunity to cash out and take advantage of the current situation where markets seem to absorb any off-loading of shares.

Roughly 42 per cent of the Nifty weightage comes from the BFSI space which is largely banking companies. This sector has done well and is leading the indices from the front. If one were to analyse the markets, valuations have begun to become a tad expensive but not as expensive to warrant a liquidation of stocks.

The present global scenario where interest rates continue to rule at elevated levels is a major cause of concern. Inflation which has been dominating discussions in leading economies seems to be tapering off and the reduction in the same would be a big relief going forward.

Markets in India and many parts of the global economy seem to be on a sustained upswing. The US Federal Reserve raised interest rates by 25 basis points earlier this week to a band of 5.25-5.50 per cent which is the highest since 2001.

Yet markets have not reacted very adversely to the same. The GDP on a better growth rate than anticipated has helped as has the fall in inflation compared to previous months.

Is this rally in Indian markets sustainable? It appears that two positive drivers for this rally is the sustained inflow of money from FPIs and the constant inflow from investors to mutual funds through contributions and also monthly SIP. These are ensuring that there is adequate liquidity to fuel the rally.

Yet another factor is the improved performance of Smallcap and midcap stocks and retail investors making money as they own these stocks in a much larger size than what they hold in large cap stocks.

Elections for the Lok Sabha are still three quarters way and the political stability is a big positive for investors from across the globe. The Indian economy is faring reasonably well in the given circumstances and it continues to be amongst the few that have a decent GDP growth.

Going forward, surmounting 20K on NIFTY will take time to happen but on the contrary, markets falling sharply also is ruled out. There would be a new base which is made at levels which were made during December 22 of 18,650-18,850. This would act as solid support in case of negative or adverse news.

Markets will consolidate for some time and build momentum before it has the force to mount 20K. Till then it’s a trading market with volatility which would move markets in both directions. It would be a traders’ delight and opportunity to build a portfolio for the next two to three years.