Foreign institutional investors (FIIs) have bought $1 billion in Indian equities in the past six sessions and analysts believe the buying spree could continue amid hopes that US Federal Reserve may go slow on rate hikes.
Between October 20 and 28, FIIs bought $923 million in equities, according to data from NSDL. Provisional data from the National Stock Exchange showed that on October 31, foreign investors bought around Rs 4,178.61 crore in Indian equities.
Markets in October were volatile. However, in the last few sessions it started trading higher. From October 1 to 13, both the Sensex and Nifty were down nearly 0.5% 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 blue-chip stocks. Since October 13 till date, both the BSE MidCap and SmallCap are up just 3% and 1.2%, respectively. Over that same period, both the Sensex and Nifty gained in 11 out of 12 sessions and rose over 6% each. The Sensex touched the key 61,000-point mark while the Nifty hit the 18,000 mark, just 1% away from its all-time high.
The Federal Reserve meeting will start on November 1 and the US central bank will announce its decision the following day. A rate hike of 75 basis points is already discounted by the market, according to analysts.
Dr V K Vijayakumar, chief investment strategist at Geojit Financial Services, said globally markets are looking forward to the Fed commentary after its meeting. If it indicates moderation in rate hikes going forward, markets would respond positively, Vijayakumar said.
“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 (banks, oil exploration and materials), auto, realty, healthcare, telecom, capital goods and consumer durables by local and foreign investors, Jasani said.
Investors were also positive after the US reported strong Q3 GDP numbers, which surprised on the upside with a 2.6% 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 22 basis points in the past six sessions. Investors are now eying US inflation and jobs data that will be out due later on Tuesday.
On the domestic side, the primary market would be buzzing with a lot of activity as four companies have lined up their initial public offerings, analysts said. Better than expected economic data and September quarter earnings boosted sentiment as well. The Index of Industrial Production grew 7.9% in September against a revised rate of 4.1% a month earlier. 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% versus 5.2% a month prior.
Moreover, 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.
“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% 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 Indian in its latest report.
After contracting for two consecutive months, total government expenditure grew 24.1% year-on-year in September. On the direct taxes front, both corporate and personal income taxes grew 19.2% and 5.6%, respectively, on an annualised basis in September after declines of 50% and 38% in August. Indirect taxes continued to grow decently at 14.5%p-year-on-year in September against 12.4% 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.
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