 "Sensex")
Despite the uncertainty surrounding the outcome of the recent elections in India, foreign investments into Indian large cap funds have continued to flow steadily. According to a report by Elara Capital, there has been an additional influx of $587 million this week, aligning closely with the weekly average inflow of $500 million observed over the past year. The majority of these investments are being directed towards the top 100-120 large cap companies in India. Interestingly, inflows into mid and small-cap funds have ceased since November 2023.
Analysts at Elara Capital note that this trend contrasts with previous election cycles. Ahead of the 2019 elections, significant redemptions were witnessed from India-dedicated funds, both before and after the election results, as global funds redirected their capital towards Chinese markets. Consequently, despite the victory of Prime Minister Narendra Modi, Indian markets continued to experience weakness due to the flight of foreign capital. However, during the 2014 elections, foreign flows into India-dedicated funds began to pick up a few months after the election results, starting from June 2014 and extending into 2015. The momentum reversed following the 2015 budget.
Globally, there has been a slowdown in inflows, with total global inflows reducing to $1.8 billion in the week that ended on 31 May, 2024 from $10.5 billion in the previous week. The most significant drop was observed in the United States, where flows decreased from $12 billion to $4.4 billion. China, which experienced a 10-month influx of $870 million from foreigners last week, saw a reversal with redemptions of $1 billion this week. Notably, the revival of foreign flows into China remains inconsistent.
The Global Asset Class Risk Flow Indicator indicates a continual increase, reflecting a relative revival in demand for risky assets, primarily high yield bonds. However, there has been a watchful eye on the revival of flows into global commodity dedicated funds, with trends showing signs of bottoming out but lacking a strong resurgence in inflows. Analysts suggest that a robust revival in these inflows could potentially trigger a significant rally in global commodity stocks.
SEBI FII Data reflecting pre and post-election trends from 2009, 2014, 2019, and 2024 reveals various patterns. Notably, FII flows began to recover post the Global Financial Crisis crises, with strong momentum observed for the following ten months. In contrast, weak FII flows were witnessed ahead of the 2014 election results due to financial and currency crises, leading to a sustained flow post-results. However, in the current phase, FII flows have shown volatility since late 2023, attributed to the heavy participation of retail investors in the market.
