With the US Federal Reserve deciding to maintain status quo on its policy rates and continue its accommodative stance at its meeting held in the third week of June, institutional investors across the globe heaved a sigh of relief. The community was anticipating some changes in the Fed commentary, from dovish to hawkish, but that didn’t happen, at least entirely. Though the US central bank said it has advanced to 2023 the deadline to revise the prevailing low interest rates to 0-0.25 per cent.
According to market experts, there is enough time to reach the deadline and till then the party will continue for the big investors. The liquidity provided by these investors will continue to drive the equities for some more time. However, their approach will be more cautious going ahead.
As long as the low interest regime continues in the global economy and the deluge of liquidity continues as a result of fiscal stimulus by developed economies, flow into the emerging market (EMs) equities may sustain, they say.
Foreign Portfolio Investors (FPIs), who were anticipating adverse move from the US Fed, turned net sellers in Indian markets since April 2021. This trend, however, reverted in June on the back of robust performance by Indian corporates and rapid economic revival.
“After being net sellers of Indian equities to the tune of ₹12,800 crore in April 2021, FPIs were actually buyers in May for ₹5,350 crore. Smart FPIs have bought into broader market themes in India outside the index which, coupled with buying from savvy Domestic Institutional Investors (DIIs), have reduced the valuation differential between large-caps and mid-caps,” says S Ranganathan, Head of Research at LKP Securities.
The foreign investors were perhaps unnerved by the impact of the second Covid wave and the consequent restrictions on economic activities and corporate earnings. According to NSDL, the FPIs sold equities worth ₹9,659 crore in April and ₹2,954 crore in May.
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