Dalal Street sees 27-month high inflows from FIIs in May

• Foreign institutional investors (FII) buying helped the benchmark indices stage a recovery in May – while Nifty50 rose 2.6%, Sensex gained 2.5%.
• The last time FIIs bought more Indian equities than in May was back in February 2021, when they invested ₹42,044 crore.
• FPI inflows also accelerated strongly in May, with net investments in equities at ₹43,838 crore, the highest in the last 9 months.

Foreign institutional investors (FIIs) pumped ₹27,856 crore into Indian equities in May, the highest in the last 27 months. FIIs continued to build on the momentum since March, emerging as net buyers for the third consecutive month. Foreign portfolio investor (FPI) inflows also rose to 9-month highs in May.

The last time FIIs bought more Indian equities than in May was back in February 2021, when they invested ₹42,044 crore.

Robust FII buying helped the benchmark indices stage a recovery after remaining volatile earlier this year. While the Nifty50 index rose 2.6% in May, the Sensex closed the month with gains of 2.5%.

All in all, the gains of May helped both the indices wipe out their losses in 2023 so far. As a result, the Nifty50 is now up 1.6% year-to-date, while the Sensex is up 2.1%.

The high interest from FIIs was also mirrored in purchases by FPIs – net FPI inflows in Indian equities stood at ₹43,838 crore, the highest since August 2022.

FIIs are a subset of FPIs. The FPI category consists of FIIs, qualified foreign investors (QFIs) and other miscellaneous investment entities.

FIIs comprise pension funds, mutual funds, insurance companies and investment banks, among other entities.

Unlike spurts of large inflows from FPIs last month, FII flows remained consistent throughout the month, with inflows of ₹1,266 crore a day on average.

FPI flows see strong acceleration as well

FPI inflows also accelerated strongly in May, with net investments in equities at ₹43,838 crore, the highest in the last 9 months. The last time FPIs pumped in more money was back in August 2022, at ₹51,204 crore.

In the past 3 months, FPIs have consistently accelerated their investments in Indian equities, pumping in ₹64,408 crore in total. This has helped FPIs turn net buyers in 2023 so far, at ₹30,262 crore.

Going forward, FPI flows are likely to remain positive, according to VK Vijayakumar, chief investment strategist, Geojit Financial Services. “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,” he said.

Nifty headed for lifetime highs in June

Thanks to strong buying by foreign investors, the benchmark Nifty50 index is headed for its lifetime high in June, according to analysts at ICICI Direct.

“Going ahead, we expect the index to resolve out of the intermediate hurdle of 18,500 and challenge the lifetime high of 18,900 in the coming month,” said a report by ICICI Direct.

The brokerage said that midcaps, smallcaps and financial stocks are likely to drive the rally.

In the medium term, the brokerage recommends investors capitalise on dips to make the most of the uptrend. A ‘buy on dips’ strategy is when investors look for short-term declines in share price to invest in the stock, with the belief that it will go up in the longer term.

“We expect broader markets to accelerate upward momentum fuelled by 18 month’s consolidation breakout in the Nifty Midcap index. Hence, dips should be capitalised on to build a portfolio from a medium-term perspective,” ICICI Direct said.

Vijayakumar echoes similar sentiments regarding Nifty50 touching a new record high adding that the FPI flows are likely to continue supporting the market.

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