FPI turn net buyers in June, pump ₹26,565 cr in equities; July outlook bullish

Foreign portfolio investors (FPIs) snapped their two-month selling streak and turned net buyers last month after stability returned to Indian markets with a fall in the ‘VIX’ volatility index. FPIs had halted their buying streak with the onset of the new fiscal 2024-25 (FY25). Volatility due to Lok Sabha elections 2024 and results, outperformance in Chinese markets, and other global cues had earlier weighed on the sentiments of foreign investors.

FPIs invested ₹7,962 crore worth of Indian equities and the net investment stood at ₹14,128 crore as of July 5, taking into account debt, hybrid, debt-VRR, and equities. In June, FPIs invested ₹26,565 crore in Indian equities and the debt inflows stood at ₹14,955 crore, according to the National Securities Depository Ltd (NSDL) data. The total investment in June was ₹41,757 crore.

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“For CY 2024, so far, FPIs have invested only ₹11,162 crore in equity. But the FPI investment in debt for the same period stands at a massive ₹74,928 crore. 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,” said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

Will FPI inflows continue in July?

In the fortnight ending June 30, FPIs bought heavily in telecom and financial services. They were also buyers in autos, capital goods, healthcare and IT. Selling was seen in metals, mining and power which had run up too fast in recent months, according to market analysts.

A significant feature of FPI flows is that their selling in India has been triggered by external factors like rising bond yields in the US and low valuations in other emerging markets. When that situation changes, they become buyers 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,” said Geojits’ Dr. V K Vijayakumar.

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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.

‘’We believe 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 Milind Muchhala, Executive Director, Julius Baer India.

FPI activity in Indian markets

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 initially 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 as investments saw a sharp uptick in December 2023 after they reversed their three-month selling streak in November 2023.

However, inflow intensified in December on strong global cues after the US Federal Reserve signalled the end of its tightening cycle and raised expectations of a rate cut in March 2024. 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 stands 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.