FPI investment crosses Rs 60,000 cr in November; will they pump in more or start pulling away now?

It was not just Sensex and Nifty that were on a record breaking run this month, they were accompanied by foreign investors who recorded their highest ever monthly inflows. Foreign Institutional Investors (FII) almost bought as many domestic stocks as they had sold in the month of March. Data from NDSL shows that during November foreign inflows into domestic equities were at Rs 60,358 crore — their highest amount they have ever pumped into Indian stock markets. Back in March, Rs 61,973 crore worth of domestic stocks were sold by FIIs and FPIs.

Improving macroeconomic data, reopening of the economy, global liquidity, and an increased appetite for equities is what is pulling these foreign investors towards India. In the month of November, global investment banks such as Morgan Stanley and Goldman Sachs too upped their targets for Indian equities and turned bullish. While Morgan Stanley expects Sensex to reach 50,000 points by December of 2021, Goldman Sachs has pinned a target of 14,100 on Nifty for 2021.

Inflows may slow down in the coming month but are not likely to come to a screeching halt. “FII’s have continuously pumped in money in the last one month while in index futures too they have been bullish. They have rolled their long positions and their ‘Long Short Ratio’ at the start of new series is at 76.6%,” said Ruchit Jain, Senior Analyst – Technical and Derivatives, Angel Broking. The Long-short-ratio has increased from 44.54% in the previous series. 

Although the derivative data suggests that the momentum in markets is likely to continue, FIIs might be in the overbought territory now. “FIIs index futures data signifies they are overbought in Indian market and any unwinding of longs or fresh shorting may lead to a correction in the market. Thus, some cautious approach should be adopted at these levels,” said brokerage and research firm Motilal Oswal in a recent note. Voicing similar views, Nirali Shah, Senior Research Analyst, Samco Securities said that it is time to be cautious since the current liquidity and optimism-led rally is majorly driven by market sentiments.

“During such a mad chase for momentum investors often disregard fundamentals. Taking a holistic view on FPIs and DIIs, it can be said that liquidity can still take markets higher, albeit any unpleasant event can cause corrections in bourses. Risk and reward are unfavorable for both traders and investors currently,” Nirali Shah said. She believes that it is unlikely that FPIs will invest aggressively in the coming weeks with the MSCI rejig now done and dusted.