Mumbai: Institutional investors, responsible for most of the trading in the financial markets are betting big on Indian markets, especially, banking stocks, which may drive major indices to fresh highs ahead of the polls.
The Foreign Institutional Investment (FIIs) in the equities category during the month of March was worth Rs 17,055 crore, highest since November 2017.
The Banking stocks have been especially favoured and financials being the backbone, it is seen as a sign that markets will continue to soar.
Pointing out some prominent reasons, Mayuresh Joshi, Portfolio Manager, Angel Broking said: "Firstly, the financials account for nearly 38 per cent of the Nifty and are the best proxy for the India story."
"Secondly, while private banks are expected to capitalise on consumer spending, FIIs are seriously looking at PSU banks as long term turnaround plays."
Adding that PSU banks and Private Banks operate on two different sets of triggers at present, Joshi explained, while private banks are expected to have strong retail growth, PSU banks are expected to do well after the NPA crises eases.
The rally is predicated on a stable government post elections and hence further flows would depend on factors like pre-poll surveys and exit poll surveys, analysts said.
Institutional investment from abroad is especially significant as it not only is fruitful for equities but also for the currency. Riding of the same, the rupee has consistently gained against the base currency, the US dollar, for the past couple of weeks.
Deepak Jasani of HDFC Securities, however, cautioned that any sharp concentrated sell-off from FPIs, could puncture sentiments and will reverse the upward movement of the indices.
Attributing the inflows to the improved health of the PSU banks, Jasani said, though the PSU Banks have seen some improvement but a lot more needs to be done with respect to corporate governance practices, better compensation structures, staff accountability in terms of efficiency and innovation and consolidation among PSU banks.
Joseph Thomas, Head Research - Emkay Wealth Management said: "The complex process, that Indian elections are, and its outcome need not always be on expected levels."
Adding that sustainability of inflows will also depend on a number of factors both internal and external which would include the stability of the domestic exchange rate, the course of the US economy, the performance of the domestic economy among others.
Observing the investing pattern, Joshi pointed out that FIIs have heavily invested in large-cap and index stocks, and compared to domestic buying it is more instrumental in pushing the overall index towards fresh highs.
With the pivotal Nifty Banking index touching fresh highs the FIIs-led rally may well see Sensex and Nifty touch fresh highs ahead of the polls as pointed by various brokerages and experts.
On the near term outlook, Jasani said that the FPIs could be active in this window of two odd months as short-term FPIs who want to ride on volatility will come in and exit at appropriate times.
Besides, the local investors may return to equity markets based on improving the perception of stability post the elections.
Also Investor driven DII flows may happen in case new highs are registered on the Nifty and Sensex and if the indices remain stable at those levels for a few weeks.
(Ravi Dutta Mishra can be reached at email@example.com)