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Bolstered by the slew of reforms to spur economic growth and a better-than-expected earnings season, foreign portfolio investors (FPIs) are pumping record investments into India’s capital market.
FPI inflows into Indian equities have already crossed ₹1.25-lakh crore in just eight months of the current fiscal and if the trend holds, it will soon reach a seven-year high by surpassing the previous high of ₹1.40-lakh crore recorded in 2012-13.
“The main reason for FPIs’ exuberance for Indian equities is that emerging markets have started to outperform developed economies,” Kranthi Bathini, equity strategist at WealthMills Securities, said, adding, “The MSCI AC Asia Index, which was an underperformer for the last 7-8 years, is outperforming right now and the growth prospects are better as compared to G7 index.”
Attractive valuations
He also added that attractive stock valuations are another major reason why several ‘long-only’ funds are pumping money into emerging markets, in which India is one of the major beneficiaries. Despite the pandemic-led lockdown and its adverse impact on the economy, FPIs seem to be optimistic about India’s recovery and long-term growth potential. After pulling out around ₹69,000 crore in March and April, FPIs turned net buyers of Indian equities in all subsequent months in the current fiscal barring a net outflow of ₹7,783 crore in September. However, FPIs came back with vengeance pouring ₹19,541 crore in October and ₹29,436 crore in just 10 trading sessions into November.
Major gainers
Financial services sector, which includes banks and NBFCs, are the major gainers of FPI investments in the current fiscal with a net inflow of ₹20,052 crore, followed by ‘household and personal products’ (₹ 15,208 crore) and ‘oil & gas’ (₹12,550 crore) sectors.
“FPIs’ heavy investing in India due to the MSCI emerging market index rejig further heightened the bullish sentiment. This anticipated increase in India’s weight in the emerging market index from December could be the reason for hefty purchases in private sector banks, which were slow-coaches in the entire rally,” said Nirali Shah, Senior Research analyst at Samco Securities.
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