Foreign brokerage Jefferies expects foreign portfolio investors flows into India to improve in second half of this calendar year as clarity on government policies emerge post Budget.

This follows Jefferies’ interactions with 50-plus investors in recent US roadshows. This expectation of likely turnaround in flows is significant as FPIs have remained net sellers in Indian equities so far this calendar year with outflows touching $3.7 billion. 

In calendar year 2023, FPIs had net invested $21.4 billion in Indian equities. “Our investor meetings in the US show a heightened interest to invest in India from Global and international (non US) mandates. India’s 7 percent-plus GDP growth path over a medium term and a large $5 trillion market cap has raised interest in Indian opportunities. A potential US Fed rate cut later in the year could be a big trigger for higher FPI flows to India”, Mahesh Nandurkar, Head of Research and Managing Director, Jefferies said in a research note. 

Exciting for investors

India’s weight in all cap international (non-US) is 5.9 percent but even higher at 8.5 percent in international SMID cap benchmark. A sharp rally in the SMID indices (Nifty Small and Mid cap 100 indices both +20 per cent YTD) has made the Indian SMID space exciting for the FPI investors, Jefferies note said. 

FPI investors from the global/international funds are far more open to look at sectors beyond the traditional large banks/IT/consumption. “We found a good reception to our Overweight cyclicals/real estate call as belief in a cyclical upturn in Indian economy outside the government infrastructure expenditure supported space, has gained wider FPI acceptance. Interestingly, the FPIs seem more keen to invest in ‘Consumption’ driven capex themes such as residential real estate, airports, hotels, malls etc. with good appetite to invest in the SMID names in this space”, the research note added.

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Jefferies has highlighted that continued delays in FPI registration is also forcing investors to consider American Depository Receipts (ADR) markets, which augurs well for the private banks listed with ADRs.

In the current calendar year, FPIs have not been the main market influencers as robust domestic inflows have mitigated the impact of FPI outflows, say capital market watchers.