It has been three weeks of trading since the Lok Sabha elections results were announced. BJP returned to power with a bigger mandate than 2014, adding more stability to the political scenario in the country, much to the delight of the foreign investors.
The foreign investors took this very positively especially when domestic investors were waiting for correction even before the elections. The week from May 24, 2019, till June 13, 2019, Nifty saw a return of 1.4 percent that was supported by inflows in FIIs via ETFs primarily.
Within the ETF segment, the two largest funds tracking MSCI EM did not receive any inflows as India weight is reduced in the index due to the addition of new countries.
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But the two largest funds (I Share India & Wisdom Tree) tracking MSCI/FTSE India received inflows worth $264 million on AUM of $5.45 billion, which is almost 4.84 percent of AUM, the largest in recent times.
This is in line with the historical trend that witnesses an influx of 1.3-2 times of FIIs post-election as compared to pre-election. Six months prior to Lok Sabha 2019 election FIIs bought in a total of Rs 38,800 crore. Keeping this in mind, we expect post elections six months inflows around Rs 60,000-70,000 crore, which would increase the Nifty return in a short duration.
These inflows are based on the mandate that the new government will bring in more radical measures to push the economy out of its current slump and the issues faced by the financial sector will be addressed in a much better fashion. The inflows might spread unevenly through this period as the ground data movement will also be integral to the pace at which these inflows are attracted.
We believe that as the inflows from FIIs push the Nifty returns higher, the DIIs will start adding to MF inflows, in later stages, as it takes only three to five months for retail investors to gather faith in the movement of economy and markets. Thus, DIIs participation would only come at a later stage.
Overall we believe, as of now, FIIs would continue to take Nifty at higher levels only via select stocks and there might be some inflows in select midcaps by HNIs.
(The author is Founder at Target Investing.)
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