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Resurgent Nifty set to shed its underperformer tag

Indian markets are fast closing the performance gap with other global markets, thanks to the pre-election rally and strong flows from off-shore funds. Until mid-February, the benchmark Nifty index was among the biggest underperformers globally. But after February 19, when the current leg of the rally in the Indian equities started, the Nifty soared 11.3 per cent in dollar terms, making it the best performing major global market index only after China. The top 20 global indices rose an average of 5 per cent during the period, data compiled from Bloomberg showed.

Since February, while Indian markets gained momentum, other developed and emerging markets (EM) remained muted. For instance, South Korea’s benchmark Kospi was up over 9 per cent till mid-February, but the index managed to grow only less than 2 per cent since then. Similarly, the US benchmark Dow Jones Industrial Average gained 11 per cent till mid-February after which it added just 1.9 per cent. Nifty’s underperformance with Kospi was 12 per cent till February, but now the gap is only 1.5 per cent; while with Dow Jones, Nifty’s underperformance was 14 per cent till February, but now the gap is down to 4.5 per cent.

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“EMs started witnessing FII inflows right from January 2019 as US bond yields started coming off. This led to flow of money away from the US to EMs,” said Siddharth Khemka, head retail research at Motilal Oswal. “However, the flows weren’t coming to India on account of several uncertainties including the geo-political tensions with Pakistan. From late-February there was a sudden rush among FIIs for Indian stocks since the tensions subsided and the macro-environment started looking better.”

Concerns over liquidity in debt markets along with political uncertainty and expensive valuations led the Nifty to correct 12 per cent between September and October 2018. From there, markets remained largely choppy until mid-February amid strong sell-off by foreign funds. Between September 2018 and January 2019, foreign institutional investors (FIIs) pulled out Rs 35,000 crore from the Indian equities.

However, things started turning in February 2019, post the Union Budget. The general elections was the biggest headwind market was facing during the time. Post February, markets started a preelection rally with opinion polls suggesting a comeback for the current National Democratic Alliance (NDA) government giving the Street hope of policy continuity. Since then FIIs started buying Indian shares aggressively. Stock exchange data show that FIIs have net purchased shares worth Rs 65,115 crore since February.

“The market sentiment was boosted by expectations that the incumbent government will come back to power ensuring policy continuity,” said Gaurav Dua, head of research, Sharekhan.

This rally was also supported by the buoyancy in some of the index heavyweights of the Nifty. For instance, shares of Reliance Industries have gained close to 20 per cent in 2019.

Source: Economic Times