Foreign investors invested ₹7,900 crore in Indian equities in the first week of July, benefiting from robust economic and earnings growth, according to depository data. This pushed the total foreign portfolio investment (FPI) in Indian equities to ₹11,163 crore for the calendar year 2024.
As of July 5, foreign portfolio investors (FPIs) have made a net equity inflow of ₹7,962 crore, following an inflow of ₹26,565 crore in June amid political stability and market recovery. However, in May, FPIs withdrew ₹25,586 crore amid election-related uncertainties, and in April, they pulled out over ₹8,671 crore due to concerns about changes in India's tax treaty with Mauritius and rising U.S. bond yields.
Experts suggest that the upcoming Union Budget and Q1FY25 earnings reports will play a critical role in determining the sustainability of FPI inflows. The Union Budget 2024-25, to be presented by Finance minister Nirmala Sitharaman, will be unveiled on July 23, with the Budget session commencing on July 22.
V K Vijayakumar, chief investment strategist at Geojit Financial Services, said, “Total foreign portfolio investment in equity this month, through July 5th, stands at ₹7,962 crores as per NSDL data. Debt investment during the same period is ₹6,304 crores. For CY 2024, so far, FPIs have invested only ₹11,162 crores in equity. But the FPI investment in debt for the same period stands at a massive ₹74,928 crores. The inclusion of Indian government bonds in the JP Morgan EM Govt Bond Index and the front running by investors have contributed to this divergence in equity and debt inflows."
Vijayakumar highlighted that in the fortnight ending June 30th, FPIs showed buying interest in telecom and financial services. They also showed interest in buying autos, capital goods, healthcare, and IT sectors. Conversely, there was selling observed in metals, mining, and power sectors, which had experienced rapid price increases in recent months. He noted that a crucial aspect of FPI flows is their responsiveness to external factors such as rising bond yields in the US and comparatively lower valuations in other emerging markets, and when these conditions change, FPIs tend to resume buying in India.
"In fact in recent days they have been buying the same segments and stocks at a higher price than the price at which they sold. This experience tells us that FPI selling in India is an opportunity for domestic investors,” Vijayakumar added.
Milind Muchhala, executive director at Julius Baer India, addressed the prolonged stagnation of FPI flows over the past three years. Muchhala states, "FPI activity has remained muted in the past three years, to some extent impacted by the weak EM flows amid a strengthening USD, and also due to the significant outperformance / premium valuations of India vs EM peers (such as China) of late. Also, some funds were probably waiting on the sidelines for the election event to be over."
"However, we believe that India remains an attractive investment destination amid a healthy economic and earnings growth momentum, and the 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," Muchhala added.
