Dec FPI inflow at record high of Rs 62,016 cr taking total to Rs1.70 trn in 2020
As inflows by foreign institutional investors (FIIs) have been rising amid the coronavirus pandemic, the last month of 2020, December, recorded the highest-ever monthly investments of Rs 62,016 crore. India received net inflows of FIIs for the third consecutive month. FPI inflows into Indian equities surpassed the previous high of Rs 60,358 crore recorded in November 2020. FPIs are likely to continue their support to the Indian markets for the next two quarters.
The year 2020 also recorded the highest-ever yearly net inflow of FPIs into equities at over Rs 1.70 lakh crore. The foreign investments into equities came on the back of excess liquidity due to stimulus measures globally, weak dollar, and low valuation of stocks.
In terms of purchase, FPIs initially preferred large cap stocks till October. Later on, FIIs enlarged their purchases to include the mid and small cap segments. Mostly IT, pharma, banks, FMCG, metals, realty and oil & gas stocks attracted FPIs in 2020.
Positive developments on the vaccine front to combat the novel coronavirus pandemic is also likely to boost investments. In 2020, the Indian stock market witnessed net selling by FPIs during three months -- March, April and September. March was the worst month in terms of FPIs, with the highest net outflow during the year pegged at Rs 61,973 crore.
Fund Inflows Supporting Rupee
The continuous foreign investment into the domestic equity market has been supporting the new found strength in Rupee. However, global cues such as US political situation along with global vaccination roll-out will play a determining role in Rupee's further movement. For the week, the USDINR (spot) pair is expected to trade with a lower bias and quote in the range of 72.70 and 73.50. Forex analysts predict 72.90-73 to act as a strong support zone, only a break of which will push price towards 72.50 zone and an immediate resistance at 73.50.
The weakness in dollar index and foreign fund inflows in to Indian equity markets, Rupee expected to remain firm though it has come to important support levels near 73 mark. The home currency may remain rangebound this week and digest recent gains. Besides, hopes of positive corporate earnings outlook will sustain foreign investors' interest in the market. In December, the FIIs invested around $8 billion in both equity and debt segment.
Consequently, rupee continued to gain for the fifth successive week to close at 73.12 to a greenback. The domestic front no major economic data is expected to be released but more fund inflow by the FIIs will continue to keep the rupee gains elevated. The vaccine optimism is helping the forex market, but next catalyst for the market is US Georgia runoffs, a Democratic sweep will mean expansionary Biden policy but if Republicans win then they would provide a check on policies.
Pharma sector to remain healthy in FY22
The Indian pharmaceutical sector is expected to continue its encouraging performance in next financial year i.e. 2021-22 as inelastic demand for drugs and resumption of production are reaching to the pre-Covid levels. The domestic drug sector will reach pre-Covid level in the third quarter (Q3,FY2021) and revenue growth for IPM (Indian pharmaceutical market) is expected to be 7-9 per cent in FY-21 despite muted growth in Q1 FY2021, according to a study by ratings agency ICRA.
The credit metrics of leading pharma companies are expected to remain stable in view of future growth prospects in regulated markets and relatively strong balance sheets, ICRA said adding that the capital structure and coverage indicators are expected to remain strong despite pressure on profitability and a marginal rise in debt levels given the inorganic investments, remarked ICRA.
The revenue growth for FY-22 may be slightly better at 8-11 per cent, though lower incidences of acute diseases, lesser OPDs and elective surgeries may continue to have some bearing on growth and will depend upon the course of the pandemic, observes ICRA in its report. ICRA further stated that the API/KSM (Key Starting mAterials) supplies from China, which were initially hit due to the Covid-19, have resumed gradually since March 2020 and are nearing the normalcy levels. Approximately 60 per cent of the APIs/KSM consumed, is imported from China.
Production disruptions owing to restrictions in mobility of manpower and materials eased significantly after the first few weeks of the lockdown. At present, the production has reached 90-95 per cent of the pre-Covid levels. The profitability has improved in H1 FY2021 owing to lesser overheads during the lockdown period - primarily travel, marketing and selling expenditure. The trend is expected to reverse once the pandemic situation resolves and FY2022 margins will remain in line with the pre-Covid levels, the report said.