The big deployment by foreigners into India Midcap funds peaked in the week ending September 13. They haven't done any incremental deployment since the past two months, as per a report by Elara Securities.

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All incremental India dedicated flows continue to move into Large cap funds. Mid and Smallcap flows remain flat.

However, the domestic small cap inflows is helping them generate strong performance is mid/small cap space. Hence the relative NAV line of India dedicated Midcap to Largecap funds has broken-out in Aug'22. Despite Midcap funds outperforming largecaps, we have seen FIIs not deploying incremental liquidity into that space. However, since the performance remains strong, we are also not seen any outflow pressure, the report said.

The proportion of Nifty's market cap to total India's market cap has been drifting down since Oct'20 and drops to historic lows. Such lower readings were previously seen in Jan'04, Sep'07, Nov'10 and Jan'18 period. Every single time, the expansion in this ratio from lows was accompanied by a market correction, the report said.

In the phase of reversal from lows, the correction in Nifty was smaller than overall markets. In the current cycle, we had seen this ratio hitting lower end in Sep'22 (where we saw one strong round of small cap correction) however the strong revival in domestic small flows has again dragged the ratio down since Apr'23. As soon as the ratio reached Aug'23 lows, we saw FII inflows into India Midcap funds stopping.

Since then, all incremental FII liquidity is moving to Large caps.