Strong domestic fund flows mitigated impact of FII selling in last two months

New Delhi, Feb 22 (IANS) – According to a report by Prabhudas Lilladher, the impact of FII selling has been mitigated by strong economic growth, range-bound crude prices, and strong DII flows in the past two months. The BSE Smallcap and Midcap indexes have seen a significant rise in the last 12 months, prompting concerns about stretched valuations in small/midcaps.

The report highlights that Nifty has shown consolidation with a 2.5 per cent upmove in the past six weeks, attributed to the RBI keeping policy rates unchanged, rising probability of no cuts by US Fed before the end of 2Q, and FII selling of Rs 316 billion amid increasing probability of NDA retaining power in the 2024 general elections after a strong performance in state elections.

The best performing sectors have been oil and gas, power, while realty, auto, metals, healthcare, and capital goods have also seen a strong rally. Conversely, banks and consumer segments seem to be the worst-performing sectors, while IT services have seen interest at lower levels with some recovery.

The report also notes that FII outflows have been Rs 316 billion CYTD while strong DII inflows of Rs 441 billion have negated the impact of FII selling and enabled a 2.5 per cent move in Nifty CYTD. It adds that domestic demand remains mixed, with growth being led by government-induced infra capex, revival of private capex, and structural shifts in green energy, digitization, and EV.

According to the report, “The rural recovery remains stunted and urban demand tepid; however, we believe the underlying demand is also showing a shift in wallet share as consumers spend on emerging necessities by use of new channels, a trend which will only accelerate as we march towards a $5 trillion economy by 2028.”

In conclusion, strong economic growth, range-bound crude prices, and strong DII flows have helped mitigate the impact of FII selling, resulting in a 2.5 per cent move in Nifty CYTD. However, concerns about stretched valuations in small/midcaps and the performance of various sectors indicate a complex and dynamic market landscape.

–IANS
san/arm