Flows vs Fundamentals: Kotak Equities says FPI inflows don’t mean risk-reward favourable

Passive foreign capital flows have been a driving force for strong foreign exchange inflows into Indian equity, though a bulk of these seem passive in nature, according to Kotak Institutional Equities. Passive ETF inflows from foreign households suggest expectations of certain returns, which may or may not materialise, says the report, and inflows from mutual funds likewise may reflect anticipations of equity returns related to other assets. Kotak argues the inflows cannot be inferred as a consequence of changing fundamentals. The strong passive inflows also appear to be top-down in nature.