November's historic FPI inflows may dwindle soon

Investment of Rs 58,694 crore in Indian equities in November so far by foreign portfolio investors (FPIs) has created a new record as it has significantly beaten the previous record of Rs 47,080 registered in August this year. Before this, the highest monthly investment by FPIs stood at Rs 33,981 crore March 2019. By registering two monthly record highs in a gap of two months, Indian equity market has demonstrated strong investors' sentiment.

It is an irony that 2020 will also be known as the year which witnessed highest ever monthly outflow by FPIs as the net withdrawal by them was record Rs 61,973 crore in March this year. So both the records of the highest outflow and the highest inflow of equity investment by FPIs were created just within a span of 8 months.

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Many global factors are influencing investors' preferences. "Markets are currently being driven a macro shift of assets into equities globally, and furthermore, EM (Emerging Market) equities over DM (Developed Market), as prospects of a macro recovery in APAC (Asia Pacific) and potential growth upsides driven by vaccine availability have taken root. In the meantime, the second wave of COVID-19 in EU and the US is leading to low expectations of economic activity in the last quarter of CY20 among DMs," says S Hariharan, Head - Sales Trading, Emkay Global Financial Services.

The recent trigger of the record inflow appears to be increase in weight of India in the MSCI index. "FPI inflows in November have totalled $6 billion, and are in line with inflows into South Korea and Taiwan, other similarly weighted countries in MSCI EM universe. Furthermore, India is likely to benefit from a weight increase at the MSCI index rebalance at month-end, due to an increase in Foreign Ownership Limits," says Hariharan.

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While initial recovery of the equity market this year was mostly driven by blue chip stocks, the record inflow is lifting the broader market. "Since Nifty is already at a lifetime high, we expect market strength to become more broad-based now, with under-owned sectors like Metals and PSUs catching up on performance, and mid-caps out-performing large-caps in the short-term" says Hariharan.

Momentum likely to subside

As there are still three trading days left in November, the figure is expected to change a bit however many experts believe that the current momentum may not continue for long.

"The daily momentum indicator has triggered a bearish crossover. These are signs of fatigue and suggest that the uptrend could be near its maturity from short-term perspective. On the way down, Nifty has broken its crucial hourly moving averages and the fall can continue till 12,600 in the short-term" says Gaurav Ratnaparkhi, Senior Technical Analyst, Sharekhan by BNP Paribas.

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