 "sensex, stock market, share market")
Despite trading near highs and gaining almost 7 per cent in the December series only, Nifty has delivered 16 per cent returns so far in the last 12 months, which is relatively at par with other markets. ICICI Securities is largely bullish on the markets with a target rate of 24200 for Nifty in the calendar year 2024.
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Heavyweight stocks from BFSI, auto, cement and Healthcare should lead Nifty towards 24200 levels in 2024, the brokerage added.
"We expect volatility to be sticky around current levels in coming months. Hence in the first half of 2024, one should adopt “Buy on dips” strategy," said Pankaj Pandey, head of research at ICICI Securities.
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Indian markets saw continued flows for almost five years between 2010 to 2014 as the US Fed has maintained zero interest rates post-2008 crisis. The free money helped risk assets exhibit significant outperformance. The calendar year 2023 saw a resumption in FII flows as interest rate peaked and expectations of rate cuts set in. Fresh flows were seen as the market anticipated a halt and then a gradual decline in interest rates
"Earlier in the calendar year we saw severe pullout from FPIs as US Fed accelerated interest rates to historical highs.The dollar index has started losing its steam after US Federal Reserve hit a pause button in September. Recently they
also signaled the end of policy tightening and cuts in 2024. Currently, the Fed is guiding three interest rate cuts in 2024 while the market is envisaging up to 5 cuts next year. As a result, we expect the Dollar index to weaken further and capital flows should be seen into emerging markets. Historical evidence suggests that India should be the major beneficiary of these flows," said Pankaj Pandey, Head Research, ICICI Direct.
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Indian indices made fresh life highs in December 2023 and were among the best-performing markets, as seen in the chart below. The outperformance was aided by the resumption of foreign flows which was highest among peers. The net flows for the current calendar year are nearly $20 billion, while the rest of the emerging markets have seen nominal flows. In the post-COVID era, while most of the markets are still reeling near their 2021 highs, Indian markets have given significant returns.
After significant outflows in the calendar year 2021 and the early part of the calendar year 2022, FPIs poured almost Rs 84,000 crore into equity markets between July 2022 and November 2022, noted ICICI Direct. During the period, FMCG along with healthcare stocks were among the major beneficiaries of the flows. Financial inflow was more or less in line with their index weight.
Recent Allocation of FPI inflows
Recent Allocation of FPI inflows
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The calendar year 2023 started with significant outflows amid US rate hikes. However, equity markets witnessed a return of FPIs since April 2023 as US rates seem to have peaked and they bought almost Rs 1,61,000 crore till August 2023. Higher flows were seen in Capital goods along with the Auto and Power sectors. IT and Metals remained laggard as their performance remained subdued.
Healthcare stocks have seen a good reversal as they witnessed significant allocation from FPIs since the third quarter of the calendar year 2022. Even during the outflows, the sector saw minimal outflows in the past few months.
" We expect fresh flows should continue in the healthcare space which should trigger further outperformance in the months to come," said Pandey.
Financials on the other hand have been underperforming in the market and they have received reduced flows compared to their sectoral weight in the market. However, recent data suggests a change of trend as Financials seem to attract higher flows. "We expect in declining interest rate cycle, stocks from Financial space should garner more interest from FPIs," said Pandey.
Construction-related stocks have seen continued outflows and heavyweights from the sector have relatively underperformed the market. However, due to interest rate cut expectations, Pandey expects fresh flows in 2024.
Metal as a sector has been significantly underperformer and witnessed continued outflows. The volatility in Chinese growth was a reason behind reduced exposure in the metal segment.
"With expectations of a rate cut, we expect flows to be back in the Metal space. The underperformance so far seen by the sector may turn into outperformance in the next year," added Pandey.
Meanwhile, the rupee has shown significant resilience against the US Dollar in recent months.
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"It has absorbed all the volatility and remained largely near 83 levels despite significant volatility seen in major currencies across the globe. With a stable currency, the underlying returns will dominate the flow allocations. Volatility too has been on a declining trend post-COVID and 2023 has seen sharp declines in IVs. From the average range of 18-19% seen in CY-22, CY-23 has been largely near 12 per cent throughout the year. Deepening domestic liquidity and stable currency has played a crucial role in curbing the volumes and we expect them to remain lower in the coming months as well," said Pandey.
While Lok Sabha elections in India and Presidential elections in US may trigger near-term volatility (spike) in markets but declines are likely to be limited.
Fund flows from domestic investors have witnessed a sharp rise in the last few years. The total market share of domestic investors (DII+HNI+Retail+QIBs) has moved to nearly 36 per cent from 25 per cent in 2018. On the other hand, FPIs stake has declined over the period and now they hold near 16 per cent share against 23 per cent seen in 2018. The structurally deepening domestic liquidity has curbed volatility and helped markets to remain resilient even at time of global turmoil, said the report.
