Mumbai: HSBC said India has been foreign investors’ favourite emerging market in Asia in 2020 so far. Domestic stocks have received $3.4 billion since January even as most other Asian emerging markets witnessed outflows. The financial sector has received the bulk of these overseas portfolio flows in the last three months, helping the sector to outperform in the current market run-up, said HSBC.“The bank expects flows to remain resilient, led by an optimistic EM equities outlook, soft US bond yield and FIIs ’ still underweight position on India relative to last five years,” said HSBC in a client note.The Nifty has gained almost 14 per cent since the corporate tax cut in September 2019. The mid-cap index has risen 19 per cent in the period.“The first part of the rally was fuelled by large caps, while more recently it has been augmented by mid-cap stocks,” said HSBC.The investment bank said the rally in mid-caps is a ‘partial catch-up’ after having underperformed since January 2018. It said 40 per cent of the BSE-200 index stocks is below the 200 Day Moving Average (DMA) — a long-term sentiment indicator — despite the rally suggesting the market still has not widened enough.“With large-cap stocks having done very well last year, some shift of flows to mid-cap (mutual) funds in January seems to suggest a gradual increase in risk appetite among domestic investors seeking better returns,” said HSBC.The investment bank recommends to stay invested in “highquality” stocks and gradually position for a macro recovery.“While we expect market liquidity support to remain in surplus, against the backdrop of a more gradual and lengthy path to macro recovery, investors should continue to seek bottom-up opportunities, in our view,” it said.