Despite ongoing geopolitical tensions and speculations of a prolonged period of higher interest rates, India outshines its regional counterparts by attracting the highest foreign funds flow. Foreign Institutional Investors (FIIs) display strong confidence in the Indian market, injecting a substantial $3.63 billion into Indian equities, marking their most significant buying spree since December 2023.
Furthermore, domestic institutions contribute significantly to the market momentum, remaining net buyers and channeling around Rs 52,467 crore into the market. This surge in domestic investments propels the market to reach a four-year high, underlining the growing optimism and investor sentiment in India’s economic prospects and financial markets.”
Image Credit: moneycontrol.com
Beyond India, Foreign Institutional Investors (FIIs) favored investment destinations including South Korea, Taiwan, and Indonesia, while opting to divest from markets in Japan, Malaysia, the Philippines, Thailand, Vietnam, and Sri Lanka. Notably, South Korea attracted significant inflows of $2.91 billion, followed by Taiwan with $1.14 billion and Indonesia with $585 million in investments. Conversely, the Japanese market recorded the largest FII outflow at $5.35 billion, with Thailand and Malaysia experiencing outflows of $1.13 billion and $514 million, respectively. Vietnam witnessed an outflow of $197 million, while the Philippines saw an outflow of $40 million.
Deepak Jasani, Head of Retail Research at HDFC Securities, attributed the net FII figures to stock purchases through block deals and index rebalancing activities throughout March. He noted that a significant market correction presented an opportunity for investors to acquire undervalued stocks, particularly in the small and mid-cap segments. Additionally, he highlighted that Domestic Institutional Investors (DIIs) were able to boost their equity holdings with the assistance of cash reserves. As March marks the end of the financial year, investors typically engage in portfolio adjustments and position realignments, contributing to heightened market activity and increased buying interest. Jasani emphasized that this year-end phenomenon played a role in driving the surge in market participation and investor enthusiasm during the period.
In March, the market witnessed notable block trades, including BAT Plc’s substantial stake sale in ITC amounting to Rs 17,485 crore, Rakesh Gangwal’s divestment in Interglobe Aviation valued at over Rs 7,800 crore, Tata Sons’ disposal of around 1 percent stake in Tata Consultancy Services for Rs 9,000 crore, and Singtel’s stake dilution in Bharti Airtel totaling Rs 5,849 crore.
Gaurav Misra, Head of Equity at Mirae Asset Investment Managers, highlighted the contrasting trends between domestic institutions and Foreign Institutional Investors (FIIs). While domestic institutions remained net buyers, FIIs leaned towards selling, except for activities related to MSCI rebalancing. Despite certain market segments trading at a premium, domestic mutual funds and potentially Alternative Investment Funds (AIFs) maintained substantial cash reserves, strategically deploying them in stocks where they held strong bottom-up conviction. This deliberate approach underscores domestic institutions’ confidence in selective investment opportunities amidst market volatility.
Image Credit: moneycontrol.com
In March, both the benchmark Sensex and Nifty indices saw a slight decline of 0.1 percent each, while the BSE MidCap and SmallCap indices experienced more notable drops of 0.7 percent and 5.53 percent, respectively. This correction in the Indian markets was triggered by several factors, including ED raids on a major market player, warnings from Sebi about market froth, concerns over liquidity stress tests by mutual funds, and fears of RBI intervention to manage stock market inflows.
Analysts noted that despite institutional investors engaging in significant buying activity, liquidity has tightened due to recent actions by the RBI and enforcement agencies. This has particularly impacted market operators and High Net Worth Individuals (HNIs) who rely on leverage. Additionally, Non-Banking Financial Companies (NBFCs) have started reevaluating lending against shares, leading to a reduction in overdraft facilities for HNIs. Consequently, this forced liquidation of positions has triggered a cycle of falling prices and panic selling. However, analysts expect stability in mutual fund SIP flows and believe that attractive valuations may lure investors who have been waiting on the sidelines. They also mentioned that stocks associated with questionable entities might take longer to recover, while fundamentally strong ones are likely to rebound more swiftly.
According to a recent report by brokerage Nuvama Research, they are bullish following the recent correction in mid and small-cap stocks. They perceive the current phase as a correction within an ongoing bull market, reaching oversold conditions at key support levels, and thus recommend long positions.
Furthermore, they believe that the broader market, which was previously overheated, has undergone a healthy decline, signaling the end of the correction phase and the resumption of the bull market. Despite corrective phases in large caps, the Nifty50 has remained resilient. Additionally, they anticipate favorable risk premiums for long positions in the market due to strong global market trends, upcoming earnings seasons, and looming general elections.
Sources: moneycontrol.com
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