The key driver of the 74 percent rally seen from March lows in benchmark indices has been the foreign money. Foreign institutional investors (FIIs) have, so far, pumped in more than Rs 50,000 crore in Indian markets in November, the highest in a single month.
As per the provisional data available on the NSE, FIIs net bought Rs 55,552.64 crore worth of shares till November 24. The actual data available with the Sebi shows that FIIs had invested Rs 54,521.68 crore till November 23.
The strong flow from FIIs helped the Nifty move past the psychologically important 13,000-mark from 12,000 in just 14 trading sessions. The index closed above 13,000 for the first time on November 24.
Also read: FIIs made highest monthly buying in November in the last 2 decades
The net FII buying in 2020 has been Rs 96,766 crore so far. The inflow increased sharply after the end of the presidential election in the United States that was won by Democratic Party's Joe Biden and weakness in the dollar index.
India is showing signs of recovery and slowing of coronavirus infections even as several European countries and the United States are battling a second wave, which was driving FIIs to India, experts said.
Also read: Nifty tops 13,000, up 73% since March lows; how did it get there and what lies ahead?
"Indian economy is recovering well. Credit growth also has started picking up. Electricity consumption, PMI, GST collections, and E-way bill data has been quite encouraging. With the road map for vaccination clearing, the economy will be back to full steam in 2021,” B Gopkumar, MD & CEO at Axis Securities told Moneycontrol.
"The reset has had challenges, but it has also brought forth good opportunities, and corporates across the country are gearing to cash on them." Though markets were at an all-time high, the risk to rewards still appeared promising for patient long-term investors, Gopkumar said.
Other reasons behind strong FII inflows is the progress on the vaccine front, indicating an early launch, the September quarter earnings and central banks' decision to provide liquidity support till their economies stabilise.
"Participants believe the recent rally is led by MSCI flows, however, it has been across emerging markets and not just India. The dollar index will be something to watch out for further aggression on flows from foreign participants. Sectors that led to buying recently are metals, banking, financials and auto, as we saw IT, pharma and FMCG taking a back seat," Bhavin Mehta, VP– Derivatives Strategist at Dolat Capital told Moneycontrol.
The Nifty IT was the biggest gainer among sectors, rising 97 percent. Auto, metal, pharma and bank indices shot up 75-92 percent from March lows, while energy and infra gained more than 63 percent. FMCG rose 37 percent.
In the September quarter earnings, "few sectors where we have seen a significant amount of growth are IT, pharma, metals, select private banks and NBFCs, cement. Commentaries of banks suggest there was an improvement in growth and asset quality. The asset quality outlook is much better than initially feared as collection efficiency picked up sharply in Q2FY21," said Hemang Jani, Head-Equity Strategy, Broking & Distribution at Motilal Oswal Financial Services. There has been a significant revival across sectors, he added.
On the profitability front, "EBITDA margins at the index level came in at a multi-quarter high at 18.9 percent, up 410 bps YoY, and at the PAT level, growth was limited to just around 2 percent YoY due to exceptional low tax rate in the base quarter amid changes in corporate tax rate regime last year, but PBT, which is more realistic to look at in Q2FY21, grew pretty strongly at around 31 percent YoY," ICICI Direct said.
Overall, the market outlook was positive, experts said.
"If the foreign fund inflows continue, we can see higher levels on the Nifty in the coming days/weeks. The Nifty can possibly touch 13,200-13,400 levels but it also depends on the sustainability of the economic growth over the next few months post-festival season," Jani said.
He favoured booking profits and sitting on 15-20 percent cash in the portfolio to deploy funds at lower levels during a correction.