The moment Nifty scaled the 10,600 mark on 03rd July it had gained a full 40% from the lows of March 23rd. It is ironic that most of the gains came after the lockdown was announced. Some of the biggest names in private banks, PSU banks and autos rallied sharply in the month of June setting the tone for the massive rally in the Nifty.

The first factor that triggered the rally was the rate sensitives like banks, financials and autos. Apparently, the jump in rate-sensitive stocks was triggered by hopes that Indian economy would bounce back sooner rather than later. Contraction in GDP is a given but markets are betting on a pick-up in growth post the September quarter.

Beyond all these rate-sensitive sectors, one stock called Reliance Industries has proven a point. RIL successfully steered its Rs.53,200 crore rights issue in a highly challenging market scenario. Reliance also managed to raise Rs.117,500 crore by selling 25% stake in Jio Platforms. This showed that there was an appetite among investors for good stories.

FIIs also did a silent turnaround in the month of June. After being net sellers overall between January 2020 and May 2020, Indian markets saw net inflows in the month of June. FIIs still sold into debt but equity buying in June was robust enough to make up for the marginal selling in debt. But why have the FII sentiments changed in June?

FIIs have found valuations attractive in terms of P/E ratio and P/BV ratios. FIIs see minimal risk at a time when valuation premiums of Indian markets have come down sharply. The real edge comes from the earnings yield or the inverse of P/E ratio. The earnings yield has become attractive versus bond yields, and that has induced FIIs to invest in India.