FPI buying hits 4-month high; markets poised to rally more

FPI buying helped the 12-stock Bank Nifty index outperform the broader Nifty 50 in April. While Nifty trades 4.55% away from its record high of 18,887.6 points, Bank Nifty trades just 2.2% off its record high of 44,151.8.

The April purchase was the highest for FPIs since their ₹36,239 crore investment last November, which drove Nifty to a record 18,887.6 on 1 December. Against this, domestic institutional investors (DIIs), including mutual funds invested just ₹2,217 crore in April.

After buying shares worth ₹11,119 crore in December, FPIs turned net sellers in January and February, which saw the Nifty slip steadily to a low of 16,828 on March 20. The 11% fall from the record high till 20 March spurred FPI buying once again, which helped the Nifty recover 7% to close at 18,065 on 28 April.

During the first half of April, the bulk of FPI inflows were directed at financial services (banks and non-bank lenders) which ₹4410 crore worth of inflows, followed by auto and auto components ( ₹1,259 crore), IT ( ₹1,002 crore) and capital goods ( ₹408 crore), data from the National Securities Depository Ltd showed.

Analysts expect FPI buying to fuel the index rally further, but advised investors to remain selective as sentiment, as reflected by the fear gauge, is nearing its 52-week low.

“FPI buying in BFSI, autos and capital goods has driven the rally since the second fortnight March and it looks like markets might move up further, but investors should be cautious given the low Vix level,” said Chandan Taparia, vice-president, Motilal Oswal Financial Services.

The India Vix, which reflects the market mood, has plummeted 20% from 13.63 a month ago to 10.95, which is near the 52-week low of 10.17.

“A lower reading indicates complacency, which can catch investors on the wrong foot,” said S.K. Joshi, executive director, Khambatta Securities. He attributed FPI buying to expectations that India’s economy will grow the fastest this year at 6.5%.

Taparia said another reason for the rally in Nifty and Bank Nifty rally is FPI short covering in index futures. “Their long-short ratio has fallen to around 55% from 90%-plus seen weeks ago,” Taparia added.

Other analysts say a stronger rupee has attracted FPIs.

“An important macro factor that has tilted the FPI approach is the appreciation in rupee,” said V.K. Vijayakumar, chief strategist at Geojit Financial Services. The rupee, which had touched a low of 82.94 to the dollar in late February, has now gained to 81.75. India’s Current Account Deficit is declining and if this trend continues, the rupee may appreciate further. FPIs are likely to bring more inflows into India in this context. FPIs have been buying in financial services and auto and auto components,” he said.