FPIs make net buyers of stocks, drive the markets higher

Expectations from the EU budget and strong macroeconomic growth are among key factors that will control capital flows from overseas investors, analysts say.

By Ruchit Purohit

The stock markets experienced a sharp recovery since the beginning of the new calendar year, when foreign portfolio investors (FPIs) became net buyers after relentless sales in the previous three months. Thanks to the influx, Sensex and Nifty closed above 60,000 and 17,900 levels, respectively, on Wednesday. Global investors have bought shares worth $ 579 million or $ 4.308 crore until January 5, data from NSDL shows. Expectations from the EU budget and strong macroeconomic growth are among key factors that will control capital flows from overseas investors, analysts say.

However, gross purchases and sales are still significantly lower than the usual average. According to analysts, the calendar year has just begun, and to identify a clear trend, one should wait some more time to see if fresh money is being brought into the markets.

“While FIIs have turned to buyers in January, activity is still significantly lower. Gross buying and selling figures are still significantly below average. Therefore, one should wait a week or so to measure the trend and see if new ones come. Nevertheless, consistency in domestic flows is a key factor that we believe will drive the markets as seen over the last few years, says Pankaj Pandey, Head of Research, ICICIdirect, to FE.

Furthermore, the inflow from global investors will be relatively lower than in previous years and will remain subdued in the middle of a turnaround in the global interest rate cycle due to inflationary pressures along with other factors. On the other hand, earnings growth, vaccination progress in the country and economic resilience will continue to provide solid support, experts said.

“We believe that FPI flows can revive as the relative performance of the Indian economy stands out among peers, which in part justifies above-average valuations. Reviving FPI flows would be positive for large companies, especially banks,” Jefferies said in a recent note.

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