Financials, telecom, consumer services dominate FPI inflows in June; Power, metals see continued outflows

Foreign Portfolio Investors (FPIs) turned bullish on the Indian stock market, injecting a substantial amount of funds, particularly during the latter half of the month. This marked a notable shift after two consecutive months of net selling, with FPIs emerging as net buyers of domestic equities in June. This positive sentiment was driven by expectations of policy continuity due to political stability and strong macroeconomic conditions.

FPIs net bought Indian equities worth ₹26,565 crore in June, turning net positive for the year 2024, according to data on National Securities Depository Limited (NSDL). The majority of these inflows occurred in the second half of the month, as FPIs were net sellers during the first fifteen days of June.

A majority of FPI inflows, nearly 65% of the total for the month, were concentrated in the financial services and telecommunications sectors. During the second half of June, FPIs injected ₹8,162 crore into the financial services sector, with total inflows for the month reaching ₹9,170 crore, a stark contrast to net outflows of ₹8,583 crore in May, according to NSDL data.

The telecommunications sector received the second highest inflows, with ₹6,208 crore coming in between June 16 and June 30. This brought total inflows into the sector for the month to ₹7,944 crore, up from ₹1,106 crore in May.

Additionally, the consumer services sector saw inflows of ₹4,704 crore in June, compared to ₹2,759 crore in May.

“The government’s continuity following the election results guarantees ongoing reforms. This has led to an improved GDP growth forecast, attracting FPI buying. However, the FPI buying has been focused on a few specific stocks rather than being widespread across the market or sectors. This is because Indian equities are still considered overvalued by FPIs,” said Vipul Bhowar, Director, Listed Investments, Waterfield Advisors.

He expects FPIs will make selective investments in specific sectors and stocks instead of broad-based buying across the market.

A substantial shift in FPI flows was also observed in the Information Technology (IT) and Oil, Gas & Consumable Fuels sectors in the latter half of June. Overseas investors purchased IT sector shares worth ₹1,578 crore between June 16 and June 30, after selling ₹2,559 crore worth of shares in the first half of the month. Consequently, the IT sector experienced net FPI outflows of ₹981 crore in June, compared to net outflows of ₹5,802 crore in May.

Similarly, the Oil, Gas & Consumable Fuels sector saw FPI inflows of ₹1,048 crore between June 16 and June 30, following outflows of ₹3,683 crore in the first half of the month, as per NSDL data.

Other sectors also witnessed notable FPI activity. The Automobile and Auto Components sector attracted inflows of ₹1,739 crore, the Capital Goods sector saw inflows of ₹2,792 crore, and the Chemicals sector recorded inflows of ₹1,960 crore in June.

Conversely, overseas investors continued to divest from the Power sector, with total outflows for the month amounting to ₹2,498 crore.

“Looking ahead, attention will gradually shift towards the budget and Q1FY25 earnings, which could determine the sustainability of FPI flows. The primary goal of including the bond index is to attract foreign investment into the Indian debt market rather than the equity market. As foreign investors become more familiar with the Indian fixed-income market, they may start to explore other investment opportunities, thereby opening up new avenues for growth and diversification, which should be a source of optimism for the future of FPI in India,” Bhowar said.

While India would continue to be a preferred market for FPI flows, he believes the actual inflows may not be the highest among emerging markets due to intermittent volatility and shifting global investor sentiments.

“However, the long-term outlook remains positive, providing reassurance about the stability of FPI flows in India,” he said.

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