Indian markets are on a roll and are now close to their all-time highs made on December 1, 2022 on closing basis and intra-day basis. These levels were 63,583.07 and 63,284.19 points on BSE Sensex and 18,887.60 points and 18,812.50 points on Nifty. The closing levels on Friday, May 26 were 62,501.69 points and 18,499.35 points respectively.
On a closing basis, the spread is around 1,100 points or 1.73 per cent on the BSE Sensex and around 400 points or 2.11 per cent on the Nifty. These levels may get broken in the coming week or the markets may once again fail to cross the all-time highs.
The results season is almost over and foreign portfolio investors (FPIs), who were aggressive sellers for the better part of 2022 till August September, have turned buyers.
In the first two months of the current calendar year, they were sellers of over Rs 41,000 crore in January and over Rs 11,000 crore in February. This turned into small purchases of Rs 2,000 crore in March and nearly Rs 6,000 crore in April and literally took off in May with purchases of over Rs 37,000 crore.
What could have changed or what caused the FPI to change its stance? There are a few factors that have led to this change. Earlier when FPIs sold, our markets used to fall and vice versa.
Now one finds that domestic institutions driven by retail investors’ SIPs and their investments in mutual funds are providing them the means to counter the brutal selling by FPIs. This ensures that the markets swing less and react less to severe selling.
Moreover, 2022 and part of the current fiscal year 2023 have witnessed unprecedented inflation and rising interest rates globally. India was no exception. The difference though is that inflation in India is now well within the comfort zone of its central bank, the RBI.
This also has the long-term effect of interest rates peaking in the country and we may see them gradually coming down in the near term. This will make business in India more competitive going forward.
Moreover, Indian business has weathered the challenges of volatile raw materials and logistical nightmares well during and after Covid. The gradual transition to China+1 also helped India. As a result, the export of services from the country increased and also helped its foreign exchange position.
India is one of the few countries in the world that has continued to rise against negative growth in many more countries, making it a favorite destination for FPIs to hedge their bets.
The government’s focus is on infrastructure and roads, bridges, railways are being built literally overnight. A big country like India has seen the shrinking of distances and time. This fetches better prices for fresh produce, encourages industry and ensures timely shipment of goods both locally and for export.
Yet another major development is the fact that FPIs have started looking at emerging companies from the midcap sector, which have a technology and manufacturing edge over their global counterparts. PLI or Production Linked Incentive Scheme in many sectors has made Indian industry more competitive than ever before.
The market has done virtually nothing in the last eight quarters due to various factors like Covid, global inflation and rising interest rates. If one looks at the BSE Sensex, it has been moving between 52,500 and 62,500 since March 21.
Similar levels on the Nifty are 15,700 and 18,500. The net change as compared to June 21 is 2,800 points on Nifty and 10,000 points on BSE Sensex. With valuations remaining low or unchanged, Indian markets provide an opportunity for FPIs to make money and it is an opportunity they seem to be grabbing with both hands.