Momentum in FPI inflows may not last very long: Credit Suisse

Credit Suisse on Thursday said it expects foreign portfolio inflows to continue for some more weeks, but the momentum in the flows may not last long. This is because of the changing nature of savings in developed markets such as the US and Europe.

The Indian markets have received strong inflows in calendar year 2020 despite the volatility in the first half of the year. Data from NSDL show that the Indian markets received flows worth $21.1 billion year to date. In November, the markets saw record inflows of $9.5billion.

According to Credit Suisse, foreign portfolio inflows that the markets have received could be attributed to the uncertainty over the decisive US presidential election results. Additionally, the development of the Covid-19 vaccine has helped improve the sentiment of FPIs as it brings some amount of predictability. As the certainty improved, the Indian markets started receiving foreign portfolio inflows.

However, the foreign investment bank does not expect it to last for very long.

Neelkanth Mishra, co-head of equity strategy, Asia Pacific and India equity strategist, Credit Suisse, said: “We think that reallocation to lower medium-term risk to global economies has driven these inflows. The momentum will continue for the next couple of weeks. We do not expect this to continue for a very long time because of the changing nature of savings in the US and Europe.” He explained that while during the pandemic savers did invest their funds into deposits, but despite negative deposit rates more than 60% of incremental household savings even before the pandemic were going into deposits in Europe.

The Nifty is up 8.4% year to date for calendar year 2020 despite the economic weakness, the report shows. Comparing Indian equities to its own historical valuations, emerging markets valuations and the global market valuations, Credit Suisse concluded that the Indian markets are no longer cheap and are a short distance away from being the most expensive they have ever been.

The investment bank said that if Nifty’s FY22 EPS and FY23 earnings per share (EPS) stay unchanged, price earnings multiple in December 2021 will be the same as that in January 2020. However, the investment bank mentioned that it does expect upgrades in the FY22 and FY23 EPS.