In just under a week in June, the quantum of foreign flows in the equity market has surpassed that of any other month in the current calendar year.
Foreign portfolio investors (FPIs) have bought shares worth nearly ₹21,000 crore — ₹20,814 crore to be precise — in just five trading sessions in the current month. This is the highest in any month of 2020, with the previous high registered in May at ₹14,569 crore.
Market participants are of the view that the sudden surge has been on account of the Rights Issue of Reliance Industries Limited (RIL), stake sale in Kotak Mahindra Bank, and the slight uptick in optimism even as pandemic concerns continue to linger.
“These two corporate events saw major participation by FPIs,” said Arjun Yash Mahajan, head, Institutional Business, Reliance Securities, while referring to RIL’s Rights Issue, and Uday Kotak selling 2.83% stake in Kotak Mahindra Bank.
“Add to these two events, the broader benchmark Nifty saw a breakout and added over 4.5% since the close on 29 May. The current rally has seen money flow into sectors like automobiles, private banks and pharmaceuticals as there was continued hope of the worst being behind,” added Mr. Mahajan.
RIL’s Rights Issue — the country’s largest at ₹53,124.20 crore — closed on June 3 and was subscribed 1.59 times with many foreign institutional investors putting in significant bids.
On Tuesday, Uday Kotak sold shares worth around ₹6,800 crore of Kotak Mahindra Bank, which were bought by FPIs like the Government of Singapore Investment Corporation, T. Rowe Price, Aberdeen Asset Management, Canada Pension Plan Investment Board and Oppenheimer Developing Market Fund, among others.
The cumulative foreign flows in equities this year however, is still negative at ₹19,531 crore, since March and April saw huge outflows.
Incidentally, March witnessed a record outflow of ₹61,973 crore, which was followed by selling worth ₹6,884 crore in April.
According to Mr. Mahajan, while the current rally is based on optimism, investors need to be cautious and can even look at booking some profits and wait for better entry levels amidst the coronavirus pandemic-led disruptions caused in April and May.