The ongoing rise in equity markets and rupee gains against the dollar are likely to continue as market participants feel that the strong inflow from foreign portfolio investors (FPIs) of Rs 28,798 crore (this month till March 22) in Indian equities could push the final figures for the month to a record. The inflow in March 2019 is second only to the net inflow of Rs 30,906 crore in March 2017.
While FPIs sold Indian equities worth Rs 33,553 crore in 2018 and emerged net sellers even in January 2019 with net sales of Rs 5,263 crore, the trend has reversed since then and the net inflows over the last seven weeks has more than compensated for the outflows from equity markets in 2018. Between February 1 and March 22, 2019, the FPIs have pumped in a net of Rs 46,000 crore in the Indian equities.
Interestingly, this period includes the Pulwama terror attack on February 14 and tension between India and Pakistan following the attack. Border tensions dented market sentiments and FPIs had started selling Indian equities following the attacks. The nerves were, however, calmed after de-escalation in the situation over the following days.
The overall surge in FPI inflows from February to March has lifted the Sensex at the BSE by 1,908 points or 5.3 per cent as it closed at a six-month high of 38,164 last Friday.
The rupee, in the meantime, has gained Rs 2.13 against the dollar as it has strengthened from a level of 71.08 against the dollar on January 31 to now trade at around 69 per dollar.
Last Friday, rupee closed at 68.95 against the dollar, and has thereby gained Rs 2.13 or 3 per cent over the last seven weeks.
This trend of rising markets and strengthening rupee is, however, expected to continue for now, say market experts. Rashesh Shah, chairman and CEO, Edelweiss Group said, “When US Fed decided to pause rates, money started flowing back into emerging markets. Two other things have happened; on the one hand while the uncertainty around India has disappeared, on the other hand there appears to be certainty around political stability going forward and that is providing the impetus for higher inflow of FPI money.”
The rally this time around has been more broad based with mid and small cap indices too witnessing strong gains. Since the beginning of February, while the BSE mid cap index has risen 3.5 per cent, the small cap index has gained almost 6 per cent. Among the sectoral indices, the banking index has been a big and is trading at its all time high levels of over 33,000.
While the market has been strong and backed by FPI flows, there are some who feel that investors should be careful in their stock selection. “In our sense, some kind of consolidation would now be seen for a while before unfolding the next leg of the rally. By no means, one should go short, rather it’s time to be selective when it comes to individual stocks and should be done with a proper money management,” said Sameet Chavan, chief analyst – technical and derivatives at Angel Broking.