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Thursday, November 26, 2020

Equity markets: Rally fails to rub off on mid, small caps as blue chips corner most foreign inflows

Data from NSDL and BSE shows that over the last six trading sessions FPIs have pumped in a net of Rs 25,200 crore into Indian equities and market participants say that most of that has flowed into large cap firms.

Written by Sandeep Singh | New Delhi | Updated: November 11, 2020 7:22:06 am
A digital screen on the facade of the Bombay Stock Exchange (BSE) building displays stock prices as Sensex soared, in Mumbai, Tuesday, Nov. 10, 2020. (PTI Photo)

Even as the premier indices have been rising sharply, data shows that the rally is not diversified but is concentrated in the large cap companies. On Tuesday, while the Sensex at BSE rose 680 points, or 1.6 per cent, the mid- and small-cap indices at BSE were down by 0.1 per cent and 0.5 per cent, respectively. In fact, over the last seven trading sessions, while the Sensex has rallied by 3,520 points, or 8.9 per cent, and closed at a new high of 43,277 on Tuesday, the mid- and small-cap indices have significantly underperformed as they have risen only 3.9 per cent and 3 per cent, respectively.

Market participants say that while US election results and development around Pfizer and BioNTech vaccine have propelled the markets and raised enthusiasm among investors leading to a sharp inflow of funds by foreign portfolio investors into Indian equities, much of that inflow is getting directed into large cap companies leading to a rise in the premier index at the stock exchange.

“It is pattern, when the investor sentiment turns, they first invest into bluechip companies and when they turn expensive then the money starts flowing into mid and small cap. That is what we are witnessing right now,” said a fund manager who dd not wish to be named. He said mid caps and small caps would witness a rally once the large cap companies have rallied and their valuations turn expensive.

Data from NSDL and BSE shows that over the last six trading sessions FPIs have pumped in a net of Rs 25,200 crore into Indian equities and market participants say that most of that has flowed into large cap firms.

By contrast, the domestic institutional investors have been largely booking profits over the last seven days. As against the strong inflow by FPIs, the DIIs have sold domestic equity holdings worth a net of Rs 11,600 crore in the same period. 📣 Express Explained is now on Telegram

Market participants say that a clear victory of Joe Biden as the next President of US has raised hopes of a more predictable policies and a more stable and improved geopolitical relations in the world and that has resulted into investors increasing fund flows into the emerging markets over the last week. On top of this, the news of Pfizer and BioNTech’s vaccine being 90 per cent effective in preventing Covid-19 among vaccinated participants, lifted investor sentiments and global markets to a new high.

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