The economic growth in India remains steadfast, marking it as the fastest-growing among major economies. However, the outlook for Foreign Institutional Investor (FII) flows appears uncertain, as indicated by research from the broking firm Prabhudas Lilladher.
The Nifty index has demonstrated a relatively flat trend over the past six weeks due to robust Domestic Institutional Investor (DII) flows, counterbalancing FII movements. Historically, strong FII inflows have correlated with market highs, a trend that's absent at present.
India experienced substantial FII inflows in conjunction with other emerging markets starting from April 2023. However, these peaked in June and have since turned negative as of September. The forthcoming state and general elections in the next 6-8 months might escalate political uncertainty, potentially influencing FII inflows.
Despite the relatively stagnant Nifty performance and a modest 1.6% return in the last quarter due to DII offsetting FII outflows, the market exhibits specific stock-driven actions. Notably, mid and small-cap segments have been outperforming large-caps. There's evident sectoral rotation, with Realty, Metals, Power, and Healthcare sectors showcasing increased activity.
Market conditions are balanced with various challenges, including the impact of solid US interest rates, potential crop repercussions from El Nino, inflation concerns, volatile crude oil prices, and geopolitical uncertainties.
The Nifty's valuation doesn't suggest a bubble scenario, trading at a 17.2% discount to its 10-year average, providing a level of comfort. India is on the brink of significant elections after a decade of a stable government. However, the market's trajectory in the lead-up to the Lok Sabha elections next year will largely hinge on the outcomes of state elections.
(With Agency Inputs)
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