FPIs pump ₹33,688 crore in Indian equities as buying streak extends to July; What’s fueling the inflows?

Foreign portfolio investors (FPIs) extended their buying streak to July after turning net buyers last month as stability returned to Indian markets. FPIs had halted their buying streak with the onset of the new fiscal 2024-25 (FY25). Volatility over Lok Sabha elections, outperformance in Chinese markets, and other global cues had earlier weighed on the sentiments of foreign investors.

FPIs invested ₹33,688 crore worth of Indian equities, and the net investment stood at ₹49,204 crore as of July 27, taking into account debt, hybrid, debt-VRR, and equities, according to the National Securities Depository Ltd (NSDL) data. The total investment in debt markets stood at ₹19,223 crore in July.

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‘’FPI investment in equity through 26th July stands at ₹33,688 crore. During the same period FPI investment in debt stands at ₹19,222 crore. For 2024 through 26th July FPI investment in equity stands at ₹36,888 crore and the investment in debt stands at ₹87,846 crore,'' said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

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What's fueling FPI inflows in India?

Market analysts believe the investor fraternity is now back in action to look at India as a preferred jurisdiction as compared to other markets. They also highlight that FPIs in India will continue to grow under stable government regime, conducive environment backed by inflation control, fiscal prudence and far-sighted vision for India to a make a global hub for capital markets.

‘’A significant trend in the FPI and DII investment in equity is that during the last 30 months each time FPIs turned sustained sellers DIIs were sustained buyers and consequently, in this bull market the FPIs lost this tug of war since recently they have been buying the same shares at higher prices which they sold earlier at lower prices,'' said Geojit's Dr. V K Vijayakumar.

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‘’The massive flow of money into the domestic mutual funds and the new found clout of the retail investors have strengthened the domestic investors over their foreign counterparts. Since India is one of the best performing markets in the world, the FIIs cannot afford to sell continuously in India even though valuations are getting stretched,'' he added.

Milind Muchhala, Executive Director, Julius Baer India believes that India remains an attractive investment destination amid a healthy economic and earnings growth momentum, and FPIs cannot afford to ignore the markets for too long. 

‘’In the event of a global risk-on environment, triggered by increasing expectations of rate cuts, it could lead to increasing flows to EM equities, with India expected to emerge as one of the bigger beneficiaries of the flows,'' said Muchhala.

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FPI activity in Indian markets

FPIs snapped their two-month selling streak and turned net buyers in June, infusing ₹26,565 crore in Indina equities and ₹14,955 crore in debt market. The selling reversed after stability returned to market as election jitters faded away.

In May 2024, FPIs offloaded ₹25,586 crore worth of Indian equities, and the debt inflows stood at ₹8,761 crore. Uncertainty over the outcome of the Lok Sabha elections 2024, high US bond yields, high Indian market valuations, and the outperformance of Chinese stocks weighed on sentiments.

FPIs offloaded ₹8,671 crore in Indian equities in April and ₹10,949 crore in debt markets over high US bond yields. However, they pumped ₹35,098 crore in Indian equities during March 2024 - the highest inflows recorded in the first three months of 2024. FPI outflow declined in February 2024 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 in February 2024 and the debt market investment rose to ₹22,419 crore during the month on top of the ₹19,836 crore bought in January. The inclusion of government bonds to JPMorgan and Bloomberg debt indices had triggered foreign fund inflows into debt markets.

FPIs turned massive sellers in January 2024, snapping their buying streak. Investments saw a sharp uptick in December 2023 after they reversed their three-month selling streak in November 2023. However, inflow intensified in December 2023 after the US Federal Reserve signalled the end of its tightening cycle and raised expectations of rate cuts. 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 stood at ₹68,663 crore during 2023.

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.