Foreign institutional investors (FIIs) have pumped a record Rs 46,251 crore for a month into Indian markets in November.They have consistently bought shares in every trading session this month except the Laxmi Pujan day when they sold Rs 78.5 crore worth of shares.
The inflow of funds has risen after the end of election in the United States and weakness in the dollar index. The end of uncertainty post the result of US Presidential elections seems to attract foreign funds into the Indian market. Strong corporate earnings at home also raised sentiment in the Indian markets.
The FII fund inflows have subsequently led to a rally in Indian equity market this month. While Sensex has gained 4,268 points, Nifty has risen 1217 points in just 15 trading sessions.
However, domestic institutional investors (DIIs) have taken advantage of this rally in the market and resorted to profit booking. They have sold shares worth Rs 32,600 crore in November.
Devarsh Vakil, Deputy Head of Retail Research at HDFC Securities said the main factor behind the inflows is the 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."
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 the US triggered a relief rally in all markets. The political 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, 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."
Morgan Stanley has said MSCI will include 12 Indian stocks and exclude two others as part of the semi-annual index review of its MSCI Global Standard Index. The changes to the index will come into effect as of the close of November 30, 2020. The inclusion of stocks implies that the 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.