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Last Updated : Jun 22, 2020 02:19 PM IST | Source: Moneycontrol.com

Portfolio flows to India increase in May as risk appetite improves globally

With an improvement in risk sentiment, MSCI EM and Nifty also recovered from March lows. Alongside, volatility also came off sharply in Apr-May after an eventful March.

Net portfolio flows to India significantly increased in the month of May with improvement in risk sentiment.

As per a report by Centrum Broking, FII equity flows at $1.7 billion improved significantly in May 2020 against an outflow of $8 billion in March 2020.

However, capital flows to Indian market stabilised as debt outflows limited the upside. With an improvement in risk sentiment, MSCI EM and Nifty also recovered from March lows.

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Alongside, volatility also came off sharply in April-May after an eventful March. The Nifty bounced back nearly 37 percent from its March lows.

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"Apart from the support of global risk-on sentiment, phased easing lockdown, signs of an uptick in mobility indicators, mild pickup in economic activity as indicated by May PMIs coupled with the optimism instilled by the onset of 'normal' monsoons," Centrum said.

With the outbreak of COVID-19 across the globe, global equity markets corrected significantly in March. Since the onset of April, investors again started flocking around risky asset classes and the risk on sentiment witnessed a further uptick in May.

"This has been highly fuelled by continuous mammoth liquidity injections, signs of COVID cases peaking off in Euro along with the signs of stabilization seen in the US. In addition to this, resumption of global economic activity also drove the rally," Centrum pointed out.

The brokerage expects India's economy to recover at a slower pace compared with the rest of the world.

"Before the onset of COVID, Indian eco had slowed down to 4.5 percent GDP growth, not participating in the global resurgence of CY18-19. For India, this came at a most inopportune time as the economy showed nascent signs of recovery after bold measures, from both government and the RBI," Centrum said.

"India rightly went in for early lockdown to counter COVID, thereby delaying the peak, but will have a much slower economic recovery. Given the last 2 years of lacklustre growth, the government has limited resources to support demand in the economy. Thus, we believe that the impact of COVID will be profound in India and the recovery will be more ‘U’ or ‘W’ than ‘V’ expected in some advanced economy."

The brokerage said it continues with its defensive stance and capital preservation mode, but at the same time, recommend to be fully invested to take advantage of the global liquidity.

"To play the economic opening, we prefer operating leverage over financial leverage. Accordingly, we have further reduced weight on BFSI to 31 percent from 33 percent and increased weights on autos and cement. We continue to hold overweights on IT, Pharma, FMCG, telecom and agrochemicals," Centrum said.

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First Published on Jun 22, 2020 02:19 pm
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