One-way rush on D-Street! FPIs can't afford to stay away from peak growth

FPIs have driven Sensex above 80,000, capitalizing on 7.2% GDP growth projections and fiscal prudence. The brief pullout is seen as temporary. Large caps gain focus amid rising valuations. Policy continuity, budget reforms, ministry formation, and positive monsoon prospects improve earnings visibility, enhancing India's appeal to FPIs for sustained investment.

are back in the market, hoisting Sensex above 80k in the index's fastest 10,000-point rally. There is reason to believe FPIs are here to stay, and their pullout in May and June was a blip, not the trend. Uncertainty over election results is behind us, and the process of ministry formation provides investors assurance of policy continuity. The maiden budget later this month is expected to set a reform roadmap over the next five years, while persisting with fiscal prudence. The season is likely to bear out that is a FPIs can't afford to stay away from. Few other emerging markets can match India's projected 7.2% and, hence, earnings, although valuations are looking stretched.

Return of FPIs is causing a rotation in favour of large caps. Domestic investors have been pushing the broader market, raising regulatory concerns over froth in mid and small caps. These concerns should subside as catch up in valuations. The up move from 70,000 to 80,000 has been restricted to just over half the Sensex constituents and should widen as earnings visibility improves across sectors on budget proposals and monsoon prospects.

Source: Stocks-Markets-Economic Times