scorecardresearchMarkets in May: Nifty gains for 3rd straight month led by auto, FMCG; FPI
During May, the Indian markets gave negative returns in just 8 sessions while giving positive returns in 14.

Markets in May: Nifty gains for 3rd straight month led by auto, FMCG; FPI inflows highest in 8 months

Updated: 01 Jun 2023, 03:13 PM IST

The Nifty ended 2.6 percent higher in May at 18,534.40 while the Sensex rose 2.5 percent to settle the month at 62,622.24.

After witnessing the biggest monthly gain of 2023 in April, Indian markets extended their rally to end higher in May as well, giving positive returns for the third straight month.

The Nifty ended 2.6 percent higher in May at 18,534.40 while the Sensex rose 2.5 percent to settle the month at 62,622.24. Meanwhile, broader markets outperformed the benchmarks in May with the Nifty Midcap index gaining over 6 percent and the Nifty Smallcap index adding over 5 percent.

During the month, the Indian markets gave negative returns in just 8 sessions while giving positive returns in 14.

The continued rally in Indian markets comes on the back of strong foreign investor inflows for the third consecutive month. Also, a fall in crude oil prices, recovery in macro conditions, the US debt ceiling deal finally reaching a negotiation, and a pick up in consumer spending kept the investor sentiment positive in the previous month.

"There are many positives going in favour of the ongoing rally. One, the US House of Representatives has passed the US debt ceiling bill indicating that the debt impasse will be resolved. Two, the FPI investment in India continues with big investments during the last 3 days pushing the total investment in May to an impressive 43,838 crores. Three, the Q4FY23 and full-year FY23 GDP growth figures coming at 6.1 percent and 7.2 percent have impressively beaten the market expectations indicating that the FPI optimism is justified. The 4 percent decline in crude is another macro positive. These positives, particularly the GDP numbers, can impart resilience to the market. The only concern is the rising valuations which might nudge DIIs to sell thereby neutralising the FPI buying," explained V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.


During the month, 14 of 50 stocks were in the red while the remaining 36 stocks gave positive returns.

Adani Enterprises was the top gainer, up 30 percent in the last month after the Supreme Court panel did not find any evidence of stock price manipulation or violation of minimum public shareholding rules in Adani Group companies. The panel said that it has not found any 'regulatory failures' on the allegations made by the Hindenburg report.

It was followed by Bajaj Finance, IndusInd Bank, Hero Moto, Asian Paints, Tata Motors, Eicher Motors, and HUL, with all giving double-digit returns in May, up between 10 and 13 percent.

Among losers, UPL shed the most, down almost 10 percent. Meanwhile, Hindalco, Dr. Reddy's, L&T, ONGC, and JSW Steel also lost over 5 percent each.

Sector-wise trend

In the month of May, Nifty Auto was the best performing sector, up 7.6 percent on the back of strong March quarter earnings, rising demand, deflation in raw material prices, improving sales, price hikes, new launches, and recovery in chip shortage issue.

It was followed by Nifty Realty, up 7.5 percent driven by a rise in housing demand, and strong pre-booking and sales.

Meanwhile, Nifty FMCG advanced 6.7 percent, and Nifty IT also added 5.8 percent during the month. Nifty Bank, Nifty Metal, Nifty Pharma and Nifty Fin Services were up between 1 and 2 percent in this period. However, Nifty PSU Bank was the only index in the red, down over 3 percent in May.


Foreign portfolio investors (FPIs) also continued to be bullish on the Indian markets for the third straight month, pumping in 43,838 crore in May. They bought Indian equities worth 11,631 crore in April and 7,936 crore in March. This is the highest investment by FPIs in the last 8 months, since August. Before this, they made a net investment of 51,204 crore in equities in August 2022.

The FPI inflows in India are primarily driven by strong macroeconomic fundamentals and reasonable valuation of stocks and experts see this trend continuing. They believe that the worst of the FIIs outflow is now behind us as the strong earnings growth and economic recovery will play out in the remaining months of 2023.

"As India continues to be resilient compared to other global economies and there is a chance that the interest rate cycle might turn sooner rather than later, FPI flows could continue flowing into India and other emerging countries, especially in the coming months. However, the intensity of flows will vary depending on a lot of global factors and moving stones," said Umesh Kumar Mehta, CIO, Samco Mutual Fund.

The direction of the bond yields, the dollar index, inflation, growth in the developed world, and the trend in commodity prices remain critical at this juncture, added experts.

Overall, in the calendar year 2023, FPIs have bought shares worth 29,259 crore.

Outlook & Strategy

On the back of the continued recovery in Indian markets since March, experts expect this trend to continue, especially if the US Fed pauses rate hikes in the upcoming meet and strong FPI flows in India. This could even lead to the market hitting its peak in June.

"There is a good chance the benchmark indices touched their peak in 2023 but that will be paired with corrections given that we aren’t in the undervalued zone at the index level compared to our historical average. Hence, there is still scope for corrections," Mehta of Samco Mutual Fund forecasted.

He believes a rural pickup, increase in consumer spending, an infra boost by the government, more incentives for manufacturing in India which could boost exports, and continuation of oil and commodity prices in our favour are all key trends that can contribute to our indices touching newer highs.

Meanwhile, Neeraj Chadawar, Head - Quantitative Equity Research, Axis Securities, also believes in the long-term growth story of the Indian equity market. The Indian economy stands at a sweet spot of growth and remains the land of stability against the backdrop of a volatile global economy, he noted.

Advising on the strategy, Chadawar said that while the medium to long-term outlook for the overall market remains positive, we may see volatility in the short run, with the market responding in either direction.

"With this in view, the current setup is a 'Buy on Dips' market. We recommend investors maintain good liquidity (10%) to use such dips in a phased manner and build a position in high-quality companies (where the earnings visibility is relatively high) with an investment horizon of 12-18 months," he recommended.

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First Published: 01 Jun 2023, 03:07 PM IST