Foreign portfolio investors' (FPI) flows have turned positive on a trailing 12-month (TTM) basis for the first time since December 2021, market daily Business Standard reported.
Thanks to robust inflows over the past three months, the TTM overseas flows into domestic equities stand at over $7.3 billion—the most since November 2021, stated that report, adding that this has helped propel one-year Nifty returns to reach 12 percent.
Between January 2021 and April 2023, TTM FPI flows were negative for 16 straight months, informed BS. It also mentioned that the average TTM Nifty returns during this period stood at 7.6 percent, with sub-5 percent returns during eight of the 16 months.
Market experts told the market daily that while strong domestic flows have provided a solid cushion to the market, positive FPI flows are critical for the markets to post superior returns. The recent improvement in FPI flows is driven by a host of factors, said the report, citing experts.
“The outlook for FPI flows has improved significantly given the peak of the quantitative tightening cycle in the US and India’s relative outperformance to global equities recently. The outperformance of Indian equities has been driven by the reduction in valuation premium of India to emerging market (EMs) indices over the past one year and strong relative macroeconomics in terms of diminishing twin deficit risk (fiscal and current account), INR resilience, inflation dropping within the comfort zone of the RBI, in line corporate earnings and the fastest growing large economy status in the world,” ICICI Securities was quoted as saying in the report.
At the beginning of 2023, India witnessed a sharp bout of FPI flows, however, since March–and May in particular—the FPI flows into India have been the highest compared to other EMs.
The report further pointed out that sharp FPI flows into the market have propelled the markets towards new highs, however, this time around there is valuation comfort as the market has consolidated around current levels for nearly 20 months.
At present, the Nifty’s valuation (price-to-earnings) premium over MSCI EM index is at 56 percent, noted BS. While this is significantly lower than the recent high of close to 100 percent, it is above the long-term median of 45 percent, it further stated. However, if valuations rise further, it could hamper fresh FPI flows into India, cautioned experts.