June 23rd 2024.
After a brief period of uncertainty due to the general election results, foreign investors have made a strong comeback by investing a whopping Rs 12,170 crore in Indian equities in June. This surge in investments can be attributed to the investors' confidence in the country's ongoing policy reforms and promising economic growth.
This increase in investments comes as a relief after a net withdrawal of Rs 25,586 crore in May and Rs 8,700 crore in April, which were driven by concerns over the tax treaty with Mauritius and the rise in US bond yields. According to data from depositories, the total outflow for the year so far stands at Rs 11,194 crore.
However, experts believe that the inflow of foreign portfolio investors may continue to be limited due to the high valuations of the Indian equity market at present. Sunil Damania, Chief Investment Officer at MojoPMS, explains that foreign investors have been staying on the sidelines since the election results were announced, with the exception of March where they pulled out from India.
Kislay Upadhyay, smallcase Manager and founder of FidelFolio, adds that the election results, although not as decisive as expected, have instilled confidence in the market by ensuring a stable government and policy continuity. This, along with a positive business sentiment, has further boosted investor confidence.
Damania sheds light on three primary reasons for this sudden surge in foreign investments. He explains that the continuity of the government assures ongoing reforms, the Chinese economy is slowing down, and certain block deals in the market have been eagerly taken up by foreign investors.
However, it is worth noting that these investments are focused on a select few stocks rather than being spread across the market or sectors. This indicates that foreign investors are being cautious with their investments and are not willing to take risks.
Furthermore, the anticipation of a pro-growth budget has also contributed to the positive sentiment among investors, according to Himanshu Srivastava, Associate Director – Manager Research, Morningstar Investment Research India. Early trends in FPI activity in June show that there has been buying in financial services, telecom, and realty, while FMCG, IT, metals, and oil and gas have seen selling, according to VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
Apart from equity investments, foreign investors also pumped in Rs 10,575 crore in the debt market during this period, according to data from depositories. This brings the total investment in Indian debt for the year so far to Rs 64,244 crore. Experts believe that India's inclusion in the debt index has positively impacted these inflows.
Overall, despite the fluctuations in foreign investments in the short term, experts remain optimistic about India's long-term potential as an attractive investment destination for global investors. Nimesh Chandan, CIO, Bajaj Finserv Asset Management Ltd, concludes that India's promising growth prospects make it a lucrative investment opportunity for foreign investors.
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