The likelihood of a delay in US Federal Reserve's quantitative easing tapering, coupled with better-than-expected Q2 earnings, has ensured that foreign institutional investors (FIIs) are keeping overseas money flowing into Indian equities, adding to the cheer on the Street.
A compilation of provisional and official data suggests that FIIs inflows have crossed over $16 billion into equities so far this calendar year. On Wednesday, FIIs net bought $166 million worth of Indian shares, taking their month-to-date tally to $2.6 billion. Last month, FIIs had net bought nearly $2 billion of Indian equities after having cumulatively sold $3.6 billion during June to August.
Most analysts expect the US Fed to maintain its accommodative stance given the upcoming change in the Fed’s leadership and recent weak economic readings. A standoff that led to a US government shutdown earlier this month may also weigh on the Fed’s decision.
“Indian markets continue to be driven by FIIs, I do not see that changing. At the same time, there has not been a significant uptick in buying of domestic institutions,” said Saurabh Mukherjea, CEO (Institutional Equities), Ambit Capital.
However, with the global environment looking far more supportive than it was in May, most expect equities to continue to see strong inflows. The relative stability in the Indian currency has also helped bring back foreign inflows. The rupee has rebounded more than 9% since early September and is among the best performing currencies in the emerging market universe. The rupee had fallen to an all-time low in August, partly due to the reversal of foreign flows into equity and debt markets.
“Forget tapering... It was the month of May, when tapering fears first surfaced and swept the rupee along. Today, the scenario has changed 180 degrees. In our view, the US Fed may not taper at all till February. That means liquidity will continue to flow, charming our markets,” stated a note from HDFC Securities.
On the contrary, domestic institutional investors (DIIs) have remained net sellers of R69,431 crore (over $10 billion) this calendar year, data suggest. In October alone, DIIs have sold $1.9 billion of equities.