November has started on a bright note for Indian equity market. Benchmark indices which had been trading volatile for long saw a long rally of eight sessions since November 2, which pushed Sensex and Nifty to record highs. A major factor behind the rally in market is strong inflow of funds by foreign institutional investors (FIIs) this month.
FIIs have infused Rs 29,782 crore in just eight sessions into the Indian equity market which has been buoyed by prospects of a change in leadership in US and the subsequent result coupled with strong Q2 earnings.
Dr VK Vijayakumar, Chief investment strategist at Geojit said, "Market positioning in the mother market US was cautious in the run up to the presidential elections. End of the electoral uncertainty in US triggered a relief rally in all markets. The poltical construct in the US - Democratic presidency and Republican-controlled Senate is good for markets.
Any fiscal bazooka by the Biden Presidency will be thwarted by the Senate. So, the fiscal stimulus will be smaller than expected. This means the accommodative monetary policy and near zero interest rates will continue for an extended period of time. This is facilitating sustained capital flows into emerging markets like India. Further more, the rejig in MSCI Index will attract an additional $ 7 billion into India. The recovery in Indian economy and the better than expected Q2 results also have contributed to strong capital inflows."
During the same period, Sensex rallied 3,979 points and Nifty gained 1107 points. On October 30, Sensex closed at 39,614 and Nifty ended at 11,642.
The rally in benchmark indices too has attracted foreign investors to the Indian market.
However, Devarsh Vakil, Deputy Head of Retail Research at HDFC Securities said the main factor behind the inflows is change in weight of Indian stocks in MSCI index.
"Most of the flows into India for the past few sessions are due to the change of weight of India in MSCI emerging market index. Many active fund managers also anticipate such change and position themselves ahead of such passive flows . Stated economic positions of the Democratic party suggest that the dollar could weaken in the medium term, which is also driving the flows into commodities and Emerging Market equities, and India is a clear beneficiary of this trend.
Apart from index related flows, hopes for a successful coronavirus vaccine lifted expectations of a swift reopening of the global economy, which would help the resumption of business activities, and better than expected quarterly results have enthused foreign investors."
On Wednesday, Morgan Stanley said MSCI will include 12 Indian stocks and exclude two others as part of semi-annual index review of its MSCI Global Standard Index. The changes to the index will come in to effect as of the close of November 30, 2020. The inclusion of stocks implies that weightage of India in MSCI Indices will increase. It will also lead to leading to massive inflows to the tune of $2.5 billion via passive funds.
The end of uncertainty post the result of US Presidential elections also seems to attract foreign funds into the Indian market. Prospects of vaccination exercise from early 2021 have also led to FIIs hunting for opportunities in the Indian market.
Jyoti Roy - DVP- Equity Strategist at Angel Broking said, "India has received significant flows in the month of November so far due to continued improvement in the economy and Covid situation along with positive global cues especially post the outcome of the US elections.
There has been a sharp rally in global markets post the US presidential elections as the Democratic Party candidate Joe Biden looked all set to win the presidential elections. Post the US elections, focus will shift to progress on the second US stimulus package and it is expected that the Democrats will come to an agreement with the Republicans regarding the size of the package soon.
Moreover, the news flow on the vaccine front has mostly been positive with five promising vaccines at advanced stages of development which has led to markets building in the possibility that vaccination could start in early 2021."