Who is Fueling the Market Rally?

Market Rally

Unveil the mystery behind the massive bull run fueled by FPI inflows. Understand why they are so passionate about Indian markets and what’s next!

Markets are on fire! The benchmark indices Nifty and Sensex are hitting new highs every new trading session.

You might be wondering who is behind the rally. Well, it is Foreign Portfolio Investors’ (FPI) massive inflow of funds. They are the major factor driving the markets to new peaks every other trading session. But why are FPIs so passionate about Indian markets? 

Let’s find out.

What’s Happening?

May and June 2023 have been remarkable for India’s equity markets. According to Mint, NSDL data reveals that FPIs showered a staggering Rs 43,838 crore in May 2023 and Rs 47,148 crore in June 2023 into Indian equities. 

If we look at the last week of June 2023, according to Indian Express, as much as Rs 14,803 crore FPI inflows came on 30th June 2023. It was the day when the benchmark indices Sensex and Nifty, closed at all-time peaks.

Reason Behind Massive FPI Buying!

One significant driver of FPI inflows was the anticipation of changes in the Nifty composition following the merger of HDFC and HDFC Bank, which came into effect on 1st July 2023. Now, the bank is the fourth most valuable bank in the world per market capitalisation — FPIs aimed at leveraging the potential opportunities from the after-effects of the merger. 

Secondly, the current account deficit numbers (CAD) declared recently by the RBI are far better than expected. It further bolstered FPI sentiment.

If we look at the figures, the CAD for the Q4FY23, ending in March 2023, narrowed to $1.3 billion, amounting to only 0.2% of the GDP, which is far more impressive than the CAD of the entire fiscal year 2023, which stood at $67 billion or 2% of GDP. The reduction in CAD is because of a significant increase in service exports. 

The real interest rates in India look attractive; inflation has come down lower than expected. High-frequency data points like PMI manufacturing, PMI services, and GST collections are also positive.

Such positive developments reassured FPIs and boosted their confidence in the Indian markets.

Crucial Factors That May Make or Break the Inflow Trend

While the surge in FPI inflows into Indian equities is undoubtedly exciting, some crucial factors may still weigh on FPI inflows. 

Firstly, the US Federal Reserve’s hawkishness may impact every other country worldwide. Moreover, some major economies are on the radar of recession, which would impact the global economy. 

If we look at some domestic factors, the arrival of the long-awaited monsoons brings relief. Still, the delay may have disrupted the sowing patterns of crops, potentially impacting the output of cereals and may lead to food inflation. This may hamper rural demand.

As the Indian economy navigates these challenges, both from global and domestic fronts, it remains to be seen how FPIs will react and whether the positive trend in inflows will continue.

That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!

*The article is for information purposes only. This is not an investment advice.

*Disclaimer: https://tejimandi.com/disclaimer  

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