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Market participants say foreign investors are bullish about the country’s prospects but are holding back a bit with uncertainty over the US Federal Reserve’s interest rate actions looming and because of the National Elections.
Foreign investors bought Indian equities worth ₹35,286.31 in March after making purchases to the tune of ₹1,537 crore in February. Their activity in April in the past 10 years shows mixed trends. They bought on six occasions and sold on four.
Agencies“A large part of the foreign inflows in March was driven by IPOs and block deals which offer foreign investors to invest in Indian markets at a discount,” said Pratik Gupta, CEO, Kotak Securities. “However, April is likely to witness fewer deals and IPOs going into earnings and election season.”
Gupta does not anticipate a “big flurry of foreign inflows at current levels since foreign investors still view India as an expensive bet.”
The Sensex and Nifty came close to hitting all-time highs on Thursday as some late selling ahead of the long weekend eroded early gains. Both the indices could however touch new milestones this week helped by continued flows from domestic institutions coupled with the absence of big outflows from foreigners.”While there was no noticeable level of nervousness among foreign investors in March, steady and moderate flows appear likely in April with no big selloffs expected,” said UR Bhat, co-founder, Alphaniti.Analysts said investors will watch the direction of the dollar in the short-term in the wake of the US Federal Reserve Chair Jerome Powell’s remarks on Friday that the central bank was in no hurry to cut interest rates amid persisting inflationary pressure.
Lower interest rates in the US benefit emerging market equities, like India, as a resultant weaker dollar and falling bond yields would prompt foreign investors to look for better returns elsewhere.
“The US Bond Yields had a declining trend but have moved up in March especially in the last one week,” said Gupta. “The up move can be attributed to the surprise on higher-than-expected US inflation data.”
The 10-year US treasury yield stood at 4.20% on Friday, 0.09% up from the previous day and declined 1.04% in March. While the US Fed maintained the interest rates at 5.25-5.5% in its March policy meeting, it reiterated the likelihood of three interest rate cuts later this year. Wall Street is expecting the first rate cut in June.
“The movement in dollar and the US Bond yields are temporary aberrations and a rate cut by the US Fed in the latter half of the year could lead to increased foreign flows into Indian markets,” said Bhat.
Analysts said the upcoming earnings season could be a trigger for foreign flows but the geo-political tensions could soften risk appetite. “In the short term, earnings could be a trigger for foreign flows but their moves are expected to be stock-specific,” said Gupta.
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