Market insiders say that with US inflation showing signs of peaking and a question mark hanging over the strength of the US dollar in coming days is making FIIs come back to emerging markets (EMs) like India.
“For India, FPI movement has been similar to that of other major EMs like China, Korea, Taiwan, etc. A stabilized inflation scenario compared to other countries, sustainable growth in earnings from Indian companies have also helped in a big way,” Jisang Yoo, CEO, Mirae Asset Capital Markets, told ETMarkets.
When the FII selling was at its peak and many global markets were caught in a bear grip, the downside in Nifty was relatively less because of heavy participation from domestic investors. With FII support, Nifty is now less than 850 points away from racing past all -time highs.
“It might sound arrogant but the FOMO factor is another reason that has played in India’s favor,” says Santosh Meena, Head of Research,
while crediting the sheer strength of the Indian economy for the return of the FIIs.
In the near term, the biggest trigger for capital flows can turn out to be the movement of the US dollar, which had shot above 109 mark in end-July to around 105 on August 11 but last week the greenback again crossed 108. Analysts say if this flight to safety towards the US dollar continues capital inflows might be impacted.
“In emerging markets, India is likely to outperform with the best GDP growth this year and the next. So, India is likely to attract more capital flows compared to other emerging markets,” said Dr VK Vijayakumar, Chief Investment Strategist at .
While the elevated valuations in India are a concern, bulls are betting that sustained FII flows would make it easier for the market to scale new peaks before Diwali.