Foreign fund inflow propels markets to 6-month peak, rupee to 2-month high

The stimulus package announced by China and the optimism around the US-China trade agreement has bolstered FPI sentiment towards emerging markets as a whole
Overseas investors have pumped $3.8 billion (Rs 26,639 crore) into domestic stocks in less than three weeks. The flow of funds has propelled the benchmark Sensex and Nifty indices to six-month highs and the rupee to its highest level in two months. Since February 20, foreign portfolio investors (FPIs) have invested on average $290 million (Rs 2,050 crore) each day. 

Experts said the US Federal Reserve's decision to put interest rate hikes on hold was behind the latest risk-on sentiment of global funds. The stimulus package announced by China and the optimism around the US-China trade agreement has further bolstered FPI sentiment towards emerging markets (EMs) as a whole.

Exchange-traded funds, which invested in EM stocks and bonds, have reported positive flows for the 21st straight week. Last week, these EM-focused ETFs domiciled in the US reported inflows of $617 million, taking their year-to-date (YTD) inflow tally to $18.4 billion, according to the data compiled by Bloomberg. 

As India has about 9 per cent weight in the MSCI EM index, a large portion of these inflows have found their way to India. 

On Monday, FPIs invested another $545 million (Rs 3,810 crore), lifting the Sensex and Nifty by over a per cent and to their highest close since September 19, 2018. 

The Sensex ended at 37,054, while the 50-share Nifty closed at 11,168. 

The rupee closed at 69.89 against the dollar on Monday, its highest close since January 7.

From 2019 lows, the benchmark indices have jumped about 5 per cent, while the rupee has climbed nearly 3 per cent against the greenback. The mid- and small-cap indices have jumped 10 per cent and 15 per cent, respectively. The broader market is witnessing buying from wealthy investors, along with FPIs. The Fed announced a pause in the rate-hike cycle on January 31. Following this, most EMs saw a surge in foreign flows. India was late to join the party due to lingering domestic problems.

“India could not participate in the global rally due to many local factors, including issues in the wholesale financial market, geopolitical tension, and political uncertainty.  In the past few weeks, these fears have reduced and we are finally participating in the EM rally,” said Saurabh Mukherjea, founder, Marcellus Investment Managers.

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