FPI inflows push MSCI India Premium to near-record high
MUMBAI : In an indication of the Indian market’s outperformance compared to other emerging markets (EMs), the MSCI India index traded at a premium of 141.08% to MSCI Emerging Markets (EM) index, the highest in 11 months, on 4 December. The premium is also nearing its record high of 145.67% achieved on 31 October 2022. Analysts expect this premium to test its previous peak, following Tuesday’s surge in the Nifty and Sensex to new highs, driven by provisional foreign portfolio investment (FPI) flows of ₹5,223.51 crore.
Nifty reached a fresh high of 20,864.05, and the Sensex hit a new peak at 69,381.31. Also, the Bank Nifty index hit a record 47,230.55, driven by ICICI Bank and the State Bank of India, both gaining over 2% each. MSCI data for 5 December will be updated on Wednesday, but the rally to record highs in Indian markets may have widened the spread.
“The widening spread indicates outperformance of India to other EMs that make up the MSCI EM index," said Abhilash Pagaria, head of Nuvama Alternative Research. “With the continuation of the present leg of the rally, underway since 26 October, it’s likely that we may witness the premium testing its record sooner than later," said Pagaria. Pagaria said large-cap banks will be the main beneficiaries of the resumption in FPI flows to India in November-December, after a two-month hiatus.
In India, financials, including banks, constitute 32.5% of the total assets under custody (AUC) held by the FPIs, according to NSDL data of 15 November. Pagaria said the banks’ share as a percentage of the total FPI assets is now at 32.5%, against 35-37% in favourable years. Resumption of inflows suggests that the AUC of financials would rise, reflecting in the MSCI Index.
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