Foreign institutional investors (FIIs) continued their buying spree in the Indian financial market in the December quarter of FY21 and their stake in Nifty50 hit a five-year high, data from brokerage firms shows.
Signs of improvement in macroeconomic indicators, abundant liquidity infusion by central banks globally, weakness in the dollar index and strong quarterly earnings created base strong foreign fund inflow into the Indian financial market.
As per a report by brokerage firm Motilal Oswal Financial Services, FII ownership in Nifty50 rose 170 bps to 27.6 percent QoQ in the December quarter.
FIIs raised their stake in 37 Nifty50 companies QoQ in Q3 FY21. Tata Steel, State Bank of India, Larsen & Toubro and Hindalco were the stocks that witnessed the biggest QoQ jump in FII holding during the last quarter of CY 2020, Ace Equity data showed. On the other hand, Coal India, UPL, Indian Oil Corporation, Bajaj Auto and BPCL saw the QoQ decline in FII holding.
Data from NSDL shows FIIs net infused Rs 51,984 crore in the Indian market in Q2 FY21 which surged to Rs 1,55,654 crore in Q3 FY21.
Will the momentum sustain?
As per NSDL data, after pumping in money for the five consecutive months, FIIs have net sold Rs 7,405 crore in the Indian market in March so far.
A major chunk of foreign money went into the sectors that showed better earnings and signalled that these sectors will continue to do well with economic recovery.
While the low-rate regime and adequate liquidity have also been supporting inflows, rising bond yields looms as a risk.
Dr VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services pointed out that FIIs have been buying into financials, particularly the leading private sector banks, private insurance companies, mortgage lenders, IT, cement and select autos where there is clear earnings visibility.
"Going forward, FII flows will be determined largely by the trend in US 10-year bond yield, which after spiking to 1.61 percent recently is now consolidating in the 1.51 percent to 1.56 percent range. In this range large FII outflows are unlikely," said Vijayakumar.
"If it again moves above 1.6 percent, it can trigger capital outflows. The rise in the US Dollar index has been another negative factor. This too is stabilising now. Therefore, FII flows may resume but the amounts are likely to be lower than hitherto," he added.
FIIs pulled out the money in only four out of 12 months in the last calendar year. Outflow started in the month of March due to COVID-19.
They pulled out Rs 1,18,203 crore, Rs 14,859 crore and Rs 7,356 crore in March, April and May 2020, respectively.
However, Gaurav Garg, Head of Research at CapitalVia Global, pointed out once the market began to rebound, FIIs pumped more than double the amount which is equivalent to Rs 2,31,542 crore in the calendar year 2020.
"A rise in stock market volatility across the world, as well as a rise in the 10-year US bond rate may have prompted FIIs to avoid pouring into Indian markets. In the near future, FIIs may not be as bullish as they were in Q3, preferring to invest in other instruments," Garg said.
Garg believes now that the stock markets have hit all-time highs and there are no big events lined up around the world, the equity markets may trade in a range.
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