In sync with the jump in benchmark equity indices, foreign institutional investments into the India’s stock markets have been at record highs.

Buying equities worth ₹30,906 crore in March, Foreign Institutional Investors set a record for the highest monthly inflows in the history of India’s capital markets, according to data provided by Central Depository Services (India) Ltd.

The same is true even for the debt market, with FII investments hitting ₹25,354.8 crore in March. FIIs have never before put so much money in Indian markets in a single month, even during the bull phase.

UP win boosts confidence

India’s equity markets gained 3-3.3 per cent in March. “The Nifty ended higher for the third consecutive month as the resounding victory of the BJP in the key State of Uttar Pradesh boosted investor sentiment, fuelling strong foreign flows,” said Motilal Oswal, in a report.

The BJP’s victory in UP has made FIIs more confident about the direction of the government’s reforms process, such as announcement of a timeline for implementation of the Goods and Services Tax.

Global risk on sentiment, a new tax treaty governing foreign investments from April 1 and expectations that the effect of demonetisation on earnings would fade also influenced FIIs.

Global factors

Besides India-specific reasons, there are global reasons too. “Flows to emerging markets (EM) remained robust as the US Fed tempered expectations on front-loading interest rate hikes in calendar year 2017,” said ICICI Securities. A correction in the dollar index lured foreign investors towards EM assets, it added.

HDFC mutual fund pointed out that FIIs bought Indian equities worth $4.7 billion in March and $8.7 billion in FY17 despite record outflows of $4.7 billion between October 2016 and January 2017. The net FII investment in equities and debt was $8.57 billion in March 2017, it added.

Positive view

Since 2002, FII flows have been negative in equities only for two calendar years — 2008 (₹52,987.4 crore) and 2011 (₹2,714.2 crore), according to CDSL data.

In the case of debt, it has been negative only thrice — 2005 (₹5,518.4 core), 2013 (₹50,848 crore) and 2016 (₹43,645.37 crore).

Analysts attribute FIIs’ preference for India for more than a decade to superior demographics (a young population), stronger economic growth among peers, robust corporate earnings, better government policies, availability of a variety of industries, opening of capital markets, and quantitative easing by developed economies after the 2008 financial crisis.

FII inflows in the short term can be impacted by geopolitical tensions, a new tax treaty for FII investments and events such as the elections in France.

FIIs will also be watching key domestic factors such as updates on the monsoon and comments by Indian corporates about the outlook and timing of recovery while announcing their results for the just-ended fourth quarter.