Indian markets outperform global peers in April with $1.13 billion equity inflows

Both flagship Sensex and Nifty gained 3.6 percent and 4.06 percent in April.

The Indian markets exceeded expectations in April by defying concerns over rising interest rates, much to the surprise of experts. This unexpected turn of events was mainly attributed to a consistent stream of positive macroeconomic indicators and a decrease in valuations, which attracted a considerable influx of $1.13 billion in equity flows.

As a result, the benchmark Sensex and Nifty have emerged as top performers among major global equity markets for the month.

“India seems to be back in favour in April 2023 as far as FPI flows are concerned,” said Deepak Jasani, Head of Retail Research at HDFC Securities. “This may be due to a rise in risk appetite globally (and more so in emerging markets) on expectation of interest rate hikes and Indian macro numbers continuing to come in better than expected, relieving some concerns over the micro situation, too.”

In April, foreign institutions (FII) bought around $1.13 billion in local equities. This was the second consecutive month when the FIIs turned buyers. FII net selling reduced $1.83 billion from $4.3 billion seen at the end of February 2023.

Both flagship Sensex and Nifty gained 3.6 percent and 4.06 percent in April. In comparison, other global markets, such as S&P 500 gained 1.46 percent, Nasdaq Composite 0.04 percent, CAC 2.31 percent, DAX 1.88 percent, Kospi 1 percent, 3 percent for Nikkei 225 , Shanghai Composite gained 1.5 percent, 3.13 percent for FTSE 100, Dow Jones and Ibovespa 2.5 percent each. Taiwan and Hang Seng fell 1.8 percent and 2.5 percent, respectively.

Improving macroeconomic conditions, including a decline in consumer price inflation and a halt in interest rate hikes by the Reserve Bank of India, have boosted investor sentiment. Although India's services sector expanded again in March, the sector's Purchasing Managers' Index (PMI) dropped to 57.8 from February's 12-year high of 59.4, as per data released by S&P Global on April 5.

The government collected a record-breaking Rs 1.87 lakh crore in Goods and Services Tax (GST) in April. This amount is significantly higher than the previous record high of Rs 1.68 lakh crore collected a year back.

According to Bloomberg, China has received the highest inflow of foreign investment in equities so far this year, with a total of $48.19 billion. Japan and Indonesia follow closely, receiving $13.96 billion and $11.27 billion. On the other hand, Foreign Institutional Investors (FII) have remained net sellers in the US, with a sale of around $40.74 billion in equities. In Thailand, they sold $1.88 billion, and in both the Philippines and Malaysia, FII's sold around $500 million in equities.

During the January-March period, the opening of China's equity markets led to a shift in foreign outflows, as investors looked to take advantage of relatively cheaper opportunities there. However, by the end of March 2023, the strong surge in China and a correction in Indian markets had considerably narrowed the valuation gap, resulting in eased selling pressure, according to Gaurav Dua, Senior VP - Head of Capital Market Strategy at Sharekhan by BNP Paribas.

Another reason for this shift was the US banking crisis, which prompted the US Federal Reserve to reopen liquidity taps, in contrast to the quantitative tightening approach earlier. The expansion of the balance sheet of the US central bank has triggered a positive risk-off trade globally, which is beneficial for emerging markets in general, Dua said.

Investors are now awaiting the US federal reserve meeting this week. It is widely anticipated that the Federal Reserve will increase its benchmark interest rate by 25 basis points this week, which would bring it above 5 percent. This move is aimed at mitigating downward pressure on inflation, which is currently well above the Fed's target, analysts said.