Foreign portfolio investors enter the markets while DIIs book profits

Sandeep Singh
While the Sensex at the BSE fell by 1,638 points, or 4.2 per cent, between May 1 and May 16, it jumped sharply following the exit poll outcome. (Representational Image)

The exit polls that provided indications of a return of the Narendra Modi-led NDA with a comfortable majority not only lifted the market sentiment, but also caused a reversal in investment trend of foreign portfolio investors (FPIs).

As FPIs invested a net Rs 2,026 crore a day after the election results got clear, experts say that Indian markets may see a continued flow of FPI money, following the clarity on political stability and the prospect of stable crude oil prices.

Explained

All eyes to be on policy decisions now

Though foreign portfolio investors started investing in Indian markets after the general election outcome, factors such as another rate cut by the Reserve Bank of India, portfolio allocation in the new government, reform initiatives and fiscal discipline in the first budget of Modi government s second term will be keenly watched.

While FPIs had pulled out a net of Rs 5,912 from Indian equities between May 1 and May 17, they pumped in a net of Rs 5,890 crore since the exit poll results were made public on Sunday, May 19, thereby making up for the entire outflow seen during the month prior to the exit polls.

On the other hand, domestic institutional investors (DIIs) have been seen taking contrary positions. DII investment data accessed from the stock exchanges show that while DIIs were made strong investments before the exit polls, they have been busy booking profits since the exit poll outcome led to a rally in the market.

Between May 1 and May 17, DIIs invested a net of Rs 8,872 crore. However, last week, they sold equities worth a net of Rs 2,579 crore.

A dip in FPI inflow in the first half of May, following US sanctions on Iran, trade war between US and China and election outcome uncertainty in India also had a significant impact on the movement of premier indices.

While the Sensex at the BSE fell by 1,638 points, or 4.2 per cent, between May 1 and May 16, it jumped sharply following the exit poll outcome.

In the six trading days between May 17 and May 24, it gained 2,041 points, or 5.45 per cent, to close at 39,434 on Friday, also touching the 40,000-mark on Thursday. The Nifty too breached the 12,000 mark on Thursday.

The indices witnessed big swings during last week, following the outcome of exit polls on Monday and the election result on Thursday. If the Sensex jumped 1,421 points or 3.75 per cent on Monday, it jumped another 1,014 points or 2.6 per cent intra-day on Thursday, as results showed a clear majority for the NDA.

The market, however, witnessed profit-booking in the second half of the result day, following which the Sensex closed the day with a loss of 299 points or 0.76 per cent.

On Friday, FPIs were back in the market and as the Sensex jumped 623 points or 1.6 per cent, market participants say that investors have started to take medium to long term position in Indian equities. Besides continuation of reforms and policy stability, market experts say that the prospect of another rate cut by the Reserve Bank of India in its forthcoming monetary policy in June has also started playing on the minds of investors. While the allocation of ministries will be closely watched, it will be important to see that what new reforms or policy changes does the Modi government announce in its first budget of its second term.