Foreign institutional investors have remained net purchasers of Indian shares for 10 days in a row and counting — their longest buying spree since January 2021. Here's what experts make of this.
Foreign portfolio investors (FPIs) turned net buyers of Indian shares recently and have remained so, but many of big market voices have avoided jumping the gun to call it a firm reversal in the trend. These inflows were one of the primary reasons that drove a liquidity-driven run in the Nifty50 that lasted 18-odd months to end in October 2021.
On Thursday, FPIs completed 10 days in a row of emerging net purchasers of Indian shares — their longest buying spree since January 2021, according to provisional exchange data.
However, in value terms, the inflow is not as strong as it was in their last frenzy of back-to-back daily purchases.
Thanks to FII inflows, the Nifty50 is within five percent of the last of a long chain of record highs scaled till October last year, having slumped to what many experts called one of the slowest bear markets ever.
A stock or index is said to be in the bear zone when it slumps at least 20 percent from a recent peak.
"The market rally is being driven mainly by two factors: the steady decline in the dollar index that is facilitating capital flows to emerging markets and the return of FIIs into the Indian market, which has completely changed the market sentiment," said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
"It is important to appreciate the fact that FIIs have made a complete turnaround in their strategy in India with sustained buying over the last 10 sessions... This along with the fact that India has the best growth story for this year and the next will impart resilience to the market," he said.
But is the current trend here to stay?
Vijayakumar suggests sticking to high quality growth stocks and exercising caution chasing this rally citing stretched valuations.
Market expert Ajay Bagga's view has turned more positive in the past fortnight. "Global flows into equities are turning... What will make it durable is a peak US dollar, peak inflation and peak (interest) rates. Interest rates stay hugely negative in real rate terms, which gives big risk-on momentum on any sentiment turning," he told CNBCTV18.com.
A negative real interest rate indicates a situation where inflation is greater than the nominal interest rate.
According to Bagga, the peaking of the dollar and inflation has "probably happened" whereas that of interest rates is "work in progress".
He was among the market veterans skeptical about the sustainability of the emerging shift in trend in fund flows. That was before the consecutive daily buying by the foreign investors.
Sustained buying by FIIs has grown much stronger since, something many experts are banking on at least from a near-term perspective.
Dipan Mehta, Director at Elixir Equities, is positive about more upside in the market, which he believes may hurt traders and investors who have missed out on the rally.
"If you're going to see more fund inflows from foreign portfolio investors, this market just on account of liquidity can certainly scale to higher levels and many people waiting on the sidelines with cash in their portfolio or short positions are going to feel the pain in their investment portfolios and trading positions," he told CNBC-TV18.
The Nifty50 has added 1,017.2 points or 6.1 percent in the 10-day period.