Foreign investors pick up Indian equities worth $3 billion in last 10 sessions

Foreign institutional investors (FIIs) pumped $3 billion into Indian equities over the past 10 sessions even as the US Federal Reserve have raised the key policy rates to fight out inflation.

Between October 20 and November 2, FIIs bought $2.74 billion in equities, according to data from NSDL. Provisional data from the National Stock Exchange showed that on November 3, foreign investors bought around Rs 677 crore of Indian equities.

Rate Hike by Central Banks

Fed Chair Jerome Powell on November 2 batted away any hopes investors had of the central bank pivoting towards a more dovish outlook on interest rates amid rising fears of a recession. While the statement of the US Federal Open Market Committee (FOMC) appeared to indicate that the central bank will lower the quantum of interest rate hikes going ahead, he indicated that interest rates now need to move much higher than where the FOMC expected it in September.

Traders are now expecting the central bank to continue to raise interest to 5-5.25 percent by the end of March 2023 from current level of 3.75-4 percent, indicating another 125 basis points of hike, according to CME FedWatch tool.

Back home, amid the Reserve Bank of India's failure to bring down inflation within the mandated 2 percent to 6 percent bracket, there is simmering speculation over a rate hike by the central bank. RBI governor Shaktikanta Das hinted that the hiking cycle is not over despite a divided opinion between the rate setting panel.

Das on November 2 shared his views on the macro outlook, monetary policy, liquidity and the currency at an event in Mumbai.

He maintained that the RBI is closely monitoring inflation, reiterating that the RBI’s 4 percent inflation target is important for macro stability and growth, and that above-6 percent inflation levels are detrimental to growth. As per the RBI, price stability, sustained growth and financial stability need not be mutually exclusive.

"The governor’s more hawkish inflation remarks slightly contrast with the dovish remarks by some external MPC members, suggesting that there is a growing chasm within the MPC. Meanwhile, the optimistic remarks on near-term growth prospects, while at divergence with our view, are broadly in line with the consensus view among stakeholders," Nomura said in a recent note.

"We believe Governor Das’s assertions implicitly signal that it is too premature to halt the rate hiking cycle. Our baseline case is for a 35bps hike in December and 25bps in February, with a terminal repo rate of 6.50 percent," Nomura said.

Markets Trading in the Green

Markets were volatile last month but turned green in the last few sessions it started trading higher. From October 1 to 13, both the Sensex and Nifty were down nearly 0.5 percent each, but started gaining from then.

Investors were cautious due to weakness in the broader indices as mid- and small-cap companies continued to underperform bluechip stocks. Since October 13 till date, both the BSE MidCap and SmallCap are up just 3.5 percent and 2 percent, respectively.  Over that same period, both the Sensex and Nifty gained in 11 out of 15 sessions and rose over 6 percent each. The Sensex touched the key 61,000-point mark while the Nifty hit the 18,000 mark, just 1 percent away from its all-time high.

“Expectation build-up that the US Fed may be looking to slow the pace of rate hikes have led to markets globally doing well over the last one to two weeks. In India, some FPIs (foreign portfolio investors) who were wary of India's premium valuation and had reduced their holdings now seem to be returning,” said Deepak Jasani, head of retail research, HDFC Securities.

Among sectors, buying was seen in PSUs like banks, oil exploration companies and materials companies, auto, realty, healthcare, telecom, capital goods and consumer durables by local and foreign investors, Jasani said.

The primary market would be buzzing with a lot of activity as four companies have lined up their public offers, analysts said. Better-than-expected economic data and September quarter earnings have kept the sentiment upbeat.

Macro Fundamentals 

Investors were also positive after the US reported strong third-quarter GDP numbers, which surprised on the upside with a 2.6 percent growth, a stable dollar and continued fall in US bond yields. The dollar index was trading in the range of 109-112 in October. The 10-year US Treasury bond yield has fallen nearly 15 basis points in the past nine sessions. Investors are now eying US inflation and jobs data that will be out due later on Tuesday.

The Index of Industrial Production grew 7.9 percent in September against a revised rate of 4.1 percent a month back. Growth in August was at a seven-month low. The improved performance in September was due to decent growth in the production of cement, coal and electricity. The fertiliser sector recorded double-digit expansion for the second consecutive month while steel output rose 6.7 percent versus 5.2 percent a month prior.

India’s manufacturing PMI continued to outperform the regional trend, rising modestly to 55.3 for October, from 55.1 in September. The GST collection in October was at Rs 1.52 trillion, second highest ever.

Auto sales also recorded robust growth in October. With consumers making record purchases during the month, numerous carmakers either reported highest-ever monthly sales or saw peak dispatches. The passenger vehicles (PV) market was already on an uphill drive during the months of August and September, thanks to improved vehicle despatches owing to higher production by original equipment manufacturers (OEMs)

“Overall, economic indicators in India continue to hold up as the festive season boosts consumption, keeping domestic demand revival on track. Core industries’ output growth also improved in September, and GST (goods and services tax) collections are on track to reach new highs for October. While the global growth outlook continues to weaken, we believe India’s economic growth will remain on a solid footing, with the country on track to grow at least 6 percent over the next two years. However, India’s asynchronous growth is likely to create its own challenges for macro stability. The choices facing policymakers will likely be constrained by a trade-off between growth and stability,” said Barclays India in its latest report.

After contracting for two consecutive months, total government expenditure grew 24.1 percent on-year in September. On the direct taxes front, both corporate and personal income taxes grew 19.2 percent and 5.6 percent on an annualised basis in September after declines of 50 percent and 38 percent in August. Indirect taxes continued to grow decently at 14.5 percent on-year in September against 12.4 percent in August.

Better-than-expected earnings also increased confidence among investors. Out of about half of Nifty’s 50 companies that have reported results so far, 17 have either matched or topped analysts’ estimates, while six have missed. ICICI Bank and Axis Bank are among lenders that reported robust earnings growth, aided by higher demand for loans. Results of IT firms were helped by margin recovery and cost cuts, according to Bloomberg.