July 14th 2024.
New Delhi: In the first half of this month, foreign investors showed their confidence in the Indian market by injecting a whopping Rs 15,352 crore into equities. This surge in investment can be attributed to a variety of factors, including the government's unwavering commitment to ongoing reforms, the low US Federal rates, and the strong domestic demand.
With the upcoming Union Budget on the horizon, foreign investors are closely watching to gain insights into the government's plans for economic growth. Himanshu Srivastava, Associate Director - Manager Research at Morningstar Investment Research India, believes that this will be one of the most anticipated events for foreign investors.
According to data from depositories, foreign portfolio investors have made a net inflow of Rs 15,352 crore in equities this month. This follows a significant inflow of Rs 26,565 crore in June, driven by political stability and a sharp market rebound. However, in May, FPIs had withdrawn Rs 25,586 crore due to poll jitters, and in April, over Rs 8,700 crore were withdrawn on concerns surrounding India's tax treaty with Mauritius and a rise in US bond yields.
The recent inflow of FPIs can be attributed to positive sentiments, the government's assurance of continued reforms, the low US Fed rates, and the strong domestic demand, according to Manoj Purohit, Partner and leader - FS Tax, Tax and Regulatory Services at BDO India. Additionally, the anticipation of a reform-oriented budget has also contributed to lifting investor sentiment, while better than expected earnings season has boosted investor confidence, as per Srivastava.
Apart from equities, FPIs have also invested Rs 8,484 crore in the debt market during this period, bringing the total investment in debt to Rs 77,109 crore for the year so far.
An interesting trend in institutional equity flows into the Indian market is the unpredictable nature of FPI flows compared to the consistent growth of domestic institutional investors, including mutual funds. DIIs have been consistent buyers every month in 2024, while FPIs have fluctuated between buying and selling. For instance, FPIs sold a cumulative amount of Rs 60,000 crore in January, April, and May, but bought Rs 63,200 crore in February, March, and June combined.
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, explains this divergence by stating that FPI activity is influenced by external factors like US bond yields and valuations in other markets, while DII activity is largely driven by domestic flows into the market.
Abhishek Banerjee, smallcase Manager and founder at Lotusdew, believes that FPIs have great opportunities in India, as they can earn high returns in foreign currency, benefit from rising stock prices, and gain from falling bond yields. However, he points out that Chinese markets are much cheaper, posing a challenge for investors to decide between chasing momentum or investing in undervalued stocks.
In terms of specific sectors, Vijayakumar suggests that FPIs may look to invest in IT stocks, as the better-than-expected results from major IT companies indicate potential for FPIs to buy into these stocks, where valuations are not excessive.
Overall, the Indian market continues to attract foreign investors, but their investment patterns can be volatile compared to domestic investors. As the Indian economy continues to grow and the government implements progressive reforms, it will be interesting to see how foreign investors navigate between chasing momentum and investing in value stocks.
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