At Rs 1.5 trillion, FPI inflows to India since March 2023 highest globally

Foreign portfolio investors have invested Rs|1.5 trillion in India in the last four months since March 2023,  outpacing other global markets, revealed a report by ICICI Securities. The second highest inflows were seen in Taiwan, which was less than $6 billion in the same time frame.

"From a quarterly perspective, flows in India were almost thrice than the nearest competitor. The same is reflected in terms of performance where Nifty was ble to scale fresh life highs while rest of the markets are still languishing," said Sachin Jain, analyst at ICICI Securities.

India’s weight in MSCI EM has been gradually increasing due to continuously outperformance of domestic equities. A struggling Chinese economy, which has the largest share of 30% in the MSCI index, has failed to deliver in terms of performance. 

 

"While passive flows may gradually increase in India, active flows should increase at a much faster pace in coming quarters," noted Jain.

Nifty 50 index had declined around 10% from its recent peak in December 2022 till March 2023. Post that, the market since then has recovered all of its losses to make fresh all-time highs on the back of strong foreign inflows. 

Midcap and small cap stocks outperformed in the recent recovery as the Small Cap index is up 30% from the lows in March compared to the Nifty 50 index, which is up 17% during the same period.

The Nifty 50 index is currently trading at a FY25 (1.5 year forward) P/E ratio of 18.2x with EPS of | 1080 for FY25. While valuation looks marginally higher when compared to historical average, markets have traded at even higher valuation levels historically.

"Indian equity markets have rallied sharply in last 3-4 months to scale fresh all-time high levels. Investors should avoid the temptation of booking profit as outlook remain positive. Lumpsum investment however should be avoided and deployed at any market correction. Investors should continue with regular investments," said Jain.

Even equity portfolio value of domestic mutual funds reached a record Rs 25.6 trillion in June 2023, up  33% on year, as per NSDL data. 

Inflows (ex-NFOs) into equity schemes recovered in June after witnessing lower inflows in the previous two months. Inflows in June 2023 stood at Rs 5600 crore. 

Inflows in March 2023 were at Rs 16693 crore, which declined to Rs 4868 crore in April 2023 and further declined to Rs 3066 crore in May 2023.

Midcap and smallcap funds witnessed higher inflows in last few months as broader markets continue to outperform. In June, smallcap funds saw highest ever inflows at Rs 5500 crore as against Rs 3300 crore in May 2023. 

In the first half of 2023,  smallcap funds saw inflows of Rs 18,000 crore as compared to inflows in whole CY2022 at Rs 20,000 crore. 

In the last four months, from the lows in March 2023, BSE Small cap index is up 30% while the S&P BSE Sensex was up less than 17%. 

Source: ACE MF. Data as on month-end June 2023
 

Sectorally, pharma funds followed the performance trajectory of IT funds which after having underperformed significantly in the last one year, staged a comeback in the last one month.

Infrastructure funds have seen consistent outperformance in last one year as cyclical sectors outperform stable sectors like IT and Pharma.

Consumption funds have also outperformed in the last two months as sector rotation was witnessed with interest coming in segments like FMCG, auto, retail, which are a part of the larger consumption theme.

Banking sector while has recently seen some consolidation recently, it has been stable in last one year.

Pharma funds have staged a comeback after significant underperformance in last two years. Small cap funds continue to outperform since lows in March 2023: