The end of July resulted in bullish sentiment for the equity market with foreign portfolio investors (FPIs) finally emerging as net buyers for the first time this year. FPIs’ appetite for equities rose in the last week of July, as they continued to be net sellers in other capital market-related instruments. After six consecutive months of outflow, FPIs have pumped in nearly ₹5,000 crore in the Indian equity market. This would be the first positive sign after the first half of the year which was heavily dominated by bears. Both benchmarks Sensex and Nifty 50 have recovered substantially as recession fears subside and investors hope for inflation to calm down in the coming months as the monetary policy tightening trend signals slows down.
As per NSDL data, in July, FPIs pumped in ₹4,989 crore in the equity market, while they were net sellers in the debt market with an outflow of ₹2,056 crore. FPIs also removed ₹785 crore and ₹176 cr from the debt-VRR and hybrid market.
Following the above, overall FPI investment in the Indian market stood at ₹1,971 crore in July. This includes equities, debt, debt-VRR, and the hybrid market.
In June 2022, the foreign investors pulled out about ₹50,203 crore from the equities – the highest monthly outflow in 2022 as of now. In the first quarter of FY23 (April to June), FPIs have removed ₹1,07,340 crore in the Indian equities. Meanwhile, in the first six months of 2022 (January – June), the outflow in the equities is around ₹2,17,358 crore by FPIs.
Due to inflow in July, the equity market recorded some recovery in the outflow from FPIs. So far, the FPIs outflow is around ₹2,12,369 crore this year.
Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services said, “NSDL data as on 29th July shows FPIs have turned buyers for the month,” adding, “FPIs were buyers for 9 days in July. This reversal in FPI activity is one of the important factors driving the market rally in July.”
Further, Vijayakumar added, “The steady decline in the dollar index from above 109 to around 106.20 now has slowed down capital outflows from other markets to the US. Good Q1 results from financials have resulted in increased demand for these stocks. Change in FPI strategy has led to short covering in financials and IT too in recent days.”
From July 22, Sensex rose by at least 1,498 points in the week ending July 25-29, while Nifty 50 rose nearly 440 points. Both Sensex and Nifty 50 have surged nearly 3% each in the last week of July.
The sentiment in this week’s trading session will revolve around RBI’s monetary policy outcomes and June 2022 quarterly earnings.
In their research note, analysts Indranil Pan, Deepthi Mathew, and Radhika Piplani at Yes Bank said, As anticipated, FOMC hiked the policy rate by 75 bps for a second consecutive time to 2.25- 2.50%. Fed Chair Powell did not provide any material forward guidance but signaled for a data-dependent Fed going forward. He guided to the fact that the current dot plot projections of a 3.25-3.50% FFR by December 2022 remains appropriate, thereby indicating an increase of 100bps from the current levels. This probably signals a slowing of the pace of rate hikes.”
“While the Fed is aware of the slowing effect on the economy, recession is not something on their minds now as the labour markets continue to stay strong. The currency market rejoiced on the dovish rate hike. The dovish hike also led to a relief rally for risk assets though the recession likelihood will have to be soon priced in. Even as RBI may not strictly follow the Fed, we continue to see the RBI hiking by 50 bps in August,” the analysts added.
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