Foreign portfolio investors (FPIs) have emerged as steady buyers in Indian markets, extending the modest buying streak picked up in February. Market experts have highlighted that the steady resilience in Indian stock markets and strong macroeconomic indicators have pulled back FPIs’ interest in equities.
FPIs have bought ₹11,823 crore worth of Indian equities and the total inflow stands at ₹15,559 crore as of March 7, taking into account debt, hybrid, debt-VRR, and equities, according to National Securities Depository Ltd (NSDL) data. FPIs infused ₹3,316 crore in debt markets so far this month, extending the positive momentum in bonds picked up in 2023.
“FPIs are turning steady buyers in India as evidenced by the net buying of equity worth ₹11,823 crore this month up to 8th March. FPIs were big sellers in January and very modest buyers in February,” said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
Also Read: Nifty Next 50 outperforms all major indices in February, Microcap 250 up over 95% in 1 year; check details
Why are FPIs buying steadily in Indian markets?
Manoj Purohit, Partner and leader – FS Tax, Tax and Regulatory Services, BDO India also added that the persistence performance of large Indian corporates being major factors for turning the tide green for the Indian equity market.
‘’On the regulatory front, announcements such as removal of UAE from the grey list, SEBI’s consultation paper for easing UBO disclosures’ norms for regulated FPIs have been the major catalysts to put India on the forefront for potential long term investments for the foreign fraternity,” said Purohit. According to market experts, there are mainly three reasons for FPIs’ renewed interest by in India.
1.Resilience in Indian stock markets: ‘’One, the Indian market is showing great resilience and every dip is getting bought. FPIs have been forced to buy the same shares which they sold at higher prices, which is a losing game,” said the analyst. Benchmark Sensex and Nifty edged higher to close at fresh record highs on in the previous session driven by gains in metal shares amid firm global trends and foreign fund inflows. The frontline indices hit record highs last week extending the broader winning streak after strong macroeconomic indicators.
In a highly volatile trade, the 30-share BSE Sensex advanced 33.40 points or 0.05 per cent to settle at a new peak of 74,119.39. During the day, it jumped 159.18 points to hit an all-time high of 74,245.17. The broader Nifty rose by 19.50 points to close at a record 22,493.55. During the day, it climbed 51.6 points or 0.22 per cent to an all-time high of 22,525.65.
2.US bond yields: ‘’Two, US bond yields have been steadily declining (the 10-year yield has declined from above 4.3 per cent to 4.08 per cent now) and this has halted the switch from equity to bonds. The FPI strategy of selling equity in emerging markets to buy US bonds has stopped,” said Dr. V K Vijayakumar.
In the previous session, Treasury two-year yields fell two basis points to 4.48 per cent, with traders almost fully pricing in a quarter-point Fed interest rate cut in June. The dollar saw its longest losing streak since October, according to news agency Reuters.
3.Robust economic growth: ‘’Three, the Indian economy is growing at better-than-expected rates (FY24 GDP growth is likely to be around 7.6 per cent, far ahead of other large economies) and this will have a positive impact on corporate earnings and consequently on the stock market,” noted the analyst.
The Indian economy grew 8.4 per cent during the October-December quarter of the current financial year 2023-24 (Q3FY24), remaining the fastest-growing major economy in the world. The GDP growth in the December quarter rose sharply above D-Street estimates along with the projections by the Reserve Bank of India (RBI).
FIIs and DIIs
Foreign institutional investors (FIIs) were net buyers in Indian markets as outflows reduced significantly this month amid strong market sentiments with domestic equity benchmark Nifty 50 touching record highs buoyed by robust macroeconomic indicators. Domestic institutional investors (DIIs) were net buyers and continuous domestic inflows counterbalanced any outflows by foreign investors.
FIIs were buyers for three out of four sessions this week and the net investment value stands at ₹10,081.08 crore, while DIIs were buyers for all sessions, with a total investment of ₹10,129.17 crore, according to stock exchange data.
‘’FIIs have sold around $2.4bn of Indian shares so far despite India’s strong corporate earnings and robust macroeconomic numbers. The major concern for FII’s could be valuations as the prices of shares have run up way ahead of fundamentals. Other factors could be the US 10-year bond yield, no US Fed rate cut expectations,” said Arvinder Singh Nanda, Senior vice president at Master Capital Services Ltd.
The sectors where FIIs are cautious are Financial Services, telecom and construction. The sectors where FIIs have a bullish outlook are Healthcare, Consumer services, It and automobile. The FII trend reversal might depend on global economic conditions, sustained growth in India, US Fed policy clarity and robust domestic flow might attract foreign investment in India, according to Nanda.
Will the inflows sustain in near-term?
On the macro-economic factors, forthcoming general elections and large companies reflecting profound earnings along with decent valuations would stimulate India to be on the top spot amongst the global emerging markets to look out for atleast next 2-3 years, said market analysts.
‘’Large fund houses have also started the exercise of considering reallocation of capital to India. Seeing the proactiveness of the Indian government in easing the mode of carrying business operations, compliances, and quickly updating the regulations will surely make India is a global hub for carrying out businesses in all the spheres,” said Manoj Purohit.
On the other hand, Dr. V K Vijayakumar highlighted that the positive developments and the sustained flow of funds into the market – both directly and through institutions- can keep the market resilient.
‘’However, high valuations are a matter of concern. Valuations in the mid and small cap segments are excessive and unjustifiable. Correction in this segment is only a matter of time,” added the market expert.Also Read: FPIs’ February inflows swell to ₹22,419 crore in debt markets; What’s attracting them to Indian bonds?
FPI activity in Indian markets
FPIs outflow initially declined in February until they were net buyers by the end of the month, despite high US bond yields. The inflow into Indian equities stood at ₹1,539 crore and the debt market investment rose to ₹22,419 crore in February on top of the ₹19,836 crore bought in January. The inclusion of government bonds to JPMorgan and Bloomberg debt indices especially triggered foreign fund inflows into debt markets.
FPIs turned massive sellers in January 2024 snapping their buying streak as investments saw a sharp uptick in December 2023 after they reversed their three-month selling streak in November 2023.
However, inflow intensified in December on strong global cues after the US Federal Reserve signalled the end of its tightening cycle and raised expectations of a rate cut in March 2024. This led to a crash in US bond yields and triggered foreign fund inflows into emerging markets like India.
For the entire calendar year 2023, FPIs bought ₹1.71 lakh crore in Indian equities and the total inflow stands at ₹2.37 lakh crore taking into account debt, hybrid, debt-VRR, and equities, according to NSDL data. FPIs’ net investment in Indian debt market stands at ₹68,663 crore during 2023.
FPI inflows into Indian equities during November 2023 stood at ₹9,001 crore, compared to over ₹39,000 crore worth of shares sold in September and October together, according to NSDL data. Taking into account debt, hybrid, debt-VRR, and equities, FPI inflows were at ₹24,546 crore during the month.
Overall, only four months in 2023–January, February, September, and October- saw net FPI outflows from Indian equities. May, June, and July each recorded FPI inflows above ₹43,800 crore.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Omprakash Tiwary is a business writer who delves into the intricacies of the corporate world. With a focus on finance and economic landscape. He offers readers valuable insights into market trends, entrepreneurship, and economic developments.
