After two consecutive months of huge selling, foreign institutional investors turned net buyers in June, having bought shares worth $3.2 billion – the second-highest monthly buying after $4.2 billion in March.
This assumes significance as their recent purchases have come on the back of two successive months of selling -- $3.1 billion in May and $1.04 billion in April.
Indian markets have largely been on a winning spree ever since election results were announced in early June, with the Sensex and Nifty reaching new peaks almost daily during the month. This is despite a large section of analysts predicting a correction due to higher valuations.
Interestingly, the predictions have repeatedly been proven wrong this year as the Nifty is up 11 percent in the current calendar year to date.
Further, both the Sensex and Nifty surged nearly seven percent in June and over 7.3 percent for the June quarter. The BSE MidCap and BSE SmallCap indices have performed even better, gaining 7.7 percent and 10.8 percent in June, and registering quarterly increases of 17 percent and 21 percent, respectively.
Experts are of the view that FIIs are showing strong positive sentiment by increasing their bullish positions on Indian equity derivatives and even the net index futures contracts held by global funds with bullish interest have reached their highest levels in seven years.
Incidentally, if historical data is anything to go by then the current month should also see the markets move further north.
Except for one year – in 2015 -- Indian equities gained every year in July since 2014. Further, earnings growth is estimated to exceed 30 percent in the current fiscal.
Not to forget the strong support provided by domestic investors, both retail and institutional. Analysts highlight the fact that Indian markets rallied post-election despite lower FPI allocations and withdrawals totalling $3 billion. Domestic funds and retail investors now drive Nifty50 flows, showing confidence in India's economy and corporate earnings, they say.
More importantly, analysts believe that future FPI realignment could bring $100 billion in foreign funds over the next 3-5 years as the new government assures economic continuity, with policies aimed at inclusive growth, bolstering agriculture, infrastructure, fiscal discipline, and reforms.
This is expected to boost rural demand and overall consumption, which are the key drivers of India's GDP. Amidst this optimism, short-term market fluctuations should be disregarded, say analysts.
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