Tag: MSCI Index

Firstly, it is important to be aware of who actually FIIs are. FII stands for Foreign Institutional Investors. You can imagine them as a fundhouse or an institution which is registered outside India but is interested in investing in Indian market. They also have to be registered with SEBI, who is the Securities watchdog of India. These FIIs are also known as FPIs or Foreign Portfolio Investors.

Foreign Institutional Investors are pumping a lot of money in India. According to the data, they pumped a whopping Rs 62,951 crore in Indian markets in November 2020. This is the highest amount of money ever invested by the FPI within a month. Out of the total Rs 62,951 crore, Rs 60,358 crore went into equities and Rs 2,593 crore went in the debt segment. In fact, in November, the FIIs turned to be a net seller for just one day. That day too, they were a net seller for only Rs 78.53 crore. In October as well, FIIs were the net buyers as they invested Rs 22,033 crore. Just like you, even we were curious why is suddenly India being chosen as a preferred location to invest? Let’s find out here.

Prime Minister’s meet with the FIIs

It is for the first time FII buying in equities has crossed Rs 50,000 crore in a month. We believe Prime Minister Narendra Modi’s meeting with the FIIs played a major role behind the investment. Early in November, the PM met the world’s 20 largest pension and sovereign wealth funds at a virtual roundtable. The meeting was called the Virtual Global Investor Roundtable (VGIR) conference 2020. In this meeting, PM Modi highlighted India’s potential and its huge untapped market. He assured that his government is committed to making India economically robust. He invited them to be a part of India’s growth story and benefit from it. 

“India’s quest to become AatmaNirbhar is not just a vision but a well-planned economic strategy; a strategy that aims to use the capabilities of our businesses and skills of our workers to make India into a global manufacturing powerhouse. If you want returns with reliability, India is the place to.”– PM Narendra Modi.

This positive commentary coming from a strong leader such as Narendra Modi did have a huge effect. He was successful to lure them to put the massive quantum of money in India. The Prime Minister was vocal that they are looking to back domestic companies to thrive against foreign competition. Also, campaigns such as “Vocal for Local” and “Atmanirbhar Bharat” will suggest people to buy domestic products rather than go for a bit cheaper foreign products. 

The virtual global investor roundtable was attended by the investors from countries like Canada, Korea, US, Europe, Middle East and Australia. Some of the investors which were present are Mubadala Investment Company, Ontario Teachers, Singapore-based GIC Pvt. Ltd, Future Fund, Japan Post Bank and Temasek Holdings. Apart from foreign investors, big Indian industrialists like Mukesh Ambani (Reliance Industries), Nadan Nilekani (Infosys), Ratan Tata (Tata Group) and few others were a part of the VGIR 2020 conference.

A Boost from MSCI 

Morgan Stanley Capitals International (MSCI) is one of the biggest and reputed investment banks and financial services companies in the world. They provide stock indexes, portfolio risk and performance analytics. This index consists of stocks which can outperform and give better returns. MSCI decided to restructure its emerging market index which increased India’s weightage from 8.1% to 8.7%. What does that mean? This means that there will be an indirect inflow of about $2.5 billion (Rs 18,500 crore) to the Indian securities. These are the securities which are a part of MSCI’s Emerging Market Index. The stocks which were added to the list were:

• Kotak Mahindra Bank
• Adani Green
• Apollo Hospitals
• Yes Bank
• Balkrishna Industries
• Trent
• L&T Infotech
• MRF
• IPCA Labs
• ACC
• PI Industries
• Muthoot Finance

When the list was made public, all of these stocks saw a surge in their share prices. Retail investors followed FPIs footpath and started buying more of these stocks, thus, taking the prices higher.

The Great Indian economy

We all know that India introduced one of the most strict lockdowns in the world in March. It led to a horrific yet anticipated 23.9% contraction in Q1 FY21. Since then, the lockdown norms have been eased up by the central government and businesses are allowed to operate. In Q2FY21 (July-September), India’s real GDP contracted by 7.5%. This meant that India entered into a technical recession for the first time in 41 years. Ominous signs, right? Not exactly. What we understand is that people were expecting a contraction of around 10% in the second quarter. A stronger performance has turned the investors, especially the FIIs, bullish on the Indian market. 

They believe when it comes to investing in an emerging country, India might be one of the best options available. Rating agency Moody’s Investors Service has revised its position on the Indian economy. Earlier, they forecasted a slump of 9.6% for this calendar year. As the economy is trying to recover, they have revised their forecast to a contraction of 8.9%. The Reserve Bank of India (RBI) has recently predicted that the Indian economy will stop shrinking from this quarter. They foresee a GDP growth of 0.1% for the quarter ending December. They also expect the economy to contract by 7.5% in FY21 rather than 9.5% which they anticipated earlier. A strong rebound in the economy is what people are expecting. Whether it would be a K-shaped, V-shaped or U-shaped recovery is a different topic to discuss.

The Way Ahead

The rally which seemed to hit its peak in November has carried on in December as well. On all the first 13 days of this new month, FIIs have been a net buyer each day. They have invested more than Rs 25,000 crore till 13 December alone. With this pace, November’s record could be broken easily. Coronavirus cases in India kept decreasing in November. This positive news, along with the opening up of the economy gave confidence to the investors. Also, one point to note that India is a very young country demographically. Statistically, we have seen coronavirus to be more deadly for older people. There might be a case where the foreign investors are banking on the younger population to come out better in this pandemic. With all these reasons in place, we believe that investors might keep flowing in the money as they hope to profit from India’s recovery in the pandemic.