Indian stock markets have been soaring in last few days and hit fresh all-time highs around Diwali, lighting up the festive mood. Equity trading and investing has thus delivered excellent returns to the local investors. What exactly is driving this rally? The month of November began on a bright note for Indian equity market and most Stock Brokers in India are coming up with upgraded forecasts for equity markets. 

The benchmark indices which were trading in a volatile manner over September-October witnessed a long rally which pushed S&P BSE Sensex and Nifty 50 to record highs. S&P BSE Sensex recovered 72.51% to 44230.00 while Nifty 50 recovered by 72.58% to 12963.00 from their respective march low till November 19, 2020. In the month of November 2020, S&P BSE Sensex surged 9.33% to 43599.96 while Nifty 50 was up by 9.18% to 12771.70.

Similarly, mid-cap and small-cap index, too, seem to be getting their mojo back with index performing in-line with their peers. From their March 2020 low, the Nifty small cap 100 index has surged to 93.40% to 6194.25 while Nifty mid-cap 100 index went up by 78.25% to 19161.60 till November 19, 2020. In November 2020 itself, Nifty mid-cap 100 index went up by 9.77% to 18802.30 and Nifty small-cap 100 index surged by 5.22% to 6111.65.

One of the major reasons behind the rally in the stock markets in the month of November 2020 is the strong inflow of funds by foreign institutional investors (FIIs). FII have infused Rs. 61,731 crore since October 2020 into the Indian equity market. Since the beginning of the month of November 2020, FIIs have infused Rs. 42190 crore of equity and this trend is expected to continue in coming months as the Indian stocks have recovered impressively compared to other global markets.

With the recent spurt in buying, the overseas investors have made up for the intense selling earlier in the year. More than Rs. 68,000 crore of equity was withdrawn from the equity market in the months of March and April 2020 due to COVID-19 pandemic which gripped major economies around the world and the nationwide lockdown further added to the fears of a global recession. The foreign fund flow improved from the month of May 2020 and stood at Rs. 14,569 crore, highest inflow since November 2019.

The FII buying streak further went up in the month of June 2020 when the overseas investors infused Rs. 21832 crore of equity in Indian market as the government announced unprecedented amount of fiscal and monetary stimulus and also gradual reopening of economies post lockdown kept sentiments intact. Similarly, in the month of July and August 2020, the FII’s infused Rs. 7563 crore and Rs. 47080 crore of equity. However, in the month of September 2020, the FII’s turned out to be net sellers and pulled out Rs 7783 crore of equity. The selling was mainly witnessed on the back of rising cases of Coronavirus in the country and strong dollar also diverted money outside the country.

Overall, since the beginning of CY2020, FIIs have infused Rs. 90,078 crore of equity which is in-line with that of CY2019 where FIIs had infused Rs. 101122 crore of equity in the Indian equity market over the year and also since the corresponding period of 2014 where FIIs were net buyers of local equities worth Rs 97054 crores. 

Outlook: 

The frenzied buying by the overseas investors seems to be factoring in a strong post Covid-19 rebound in the Indian economy. Globally, Indian stocks offer a fantastic potential as strong demographics clubbed with a proactive government are auguring well for medium term. Consumption spending has shown signs of coming back and overall sentiments are positive following the plethora of reforms announced by the Central Government in the areas of agriculture, labour and the manufacturing sector.  Globally too, there has been a lot of optimism on a Covid-19 vaccine of late. The IMF has also highlighted significant progress in the development of vaccines. While the world stock markets have hit a record high, there have been fears of a second wave of Covid-19 spreading in Europe and the US. In this scenario, for a retail investor, it makes sense to seek inputs about their equity trading and investing from best online advisors in order to ensure they are on track to meet the long term goals in an effective manner. 

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