Foreign portfolio investors have rediscovered their liking for Indian equities, making a net investment of ₹31,630 crore in November on hopes of an end to the aggressive rate hikes, and positivity about overall macroeconomic trends.
According to experts, after remaining net sellers in August and September, Foreign Portfolio Investors (FPIs) are unlikely to be major sellers going forward.
Rising expectations of aggressive rate hike cycles nearing an end on relatively easing inflationary curve, better than expected US macroeconomics data and resilience of the Indian economy compared to global counterparts are also driving FPI inflows.
According to data available with the depositories, FPIs invested a net sum of ₹31,630 crore in equities during November 1-25. In comparison, there was a net outflow of ₹8 crore and ₹7,624 crore in October and September, respectively.
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In August, FPIs were net buyers to the tune ₹51,200 crore and they purchased equities worth nearly ₹5,000 crore in July.
Prior to this positive trend, FPIs remained net sellers for nine straight months starting October 2021 amid a continuous rise in the dollar.
Going ahead, FPI flows are expected to remain volatile in the near term given the geo-political concerns, Shrikant Chouhan, Head - Equity Research (Retail), Kotak Securities, said.
So far this year, the total outflow by FPIs in equities stood at ₹1.37 lakh crore.
The spurt in net inflows in November could be attributed to recent surge in equity markets, stability in the Indian economy compared to its global counterparts and stabilisation in the rupee, Morningstar India Associate Director - Manager Research Himanshu Srivastava said.
In a reflection of bullish market sentiments, Sensex and Nifty scaled lifetime highs for the second straight session on November 25.
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On the global front, lower than anticipated rise in inflation in the US raised hopes that the Federal Reserve may not go for further aggressive rate hikes, which also eased recessionary concerns in the US. This helped improve sentiments and directed foreign flows towards Indian shores, Srivastava said.
In terms of sectors, FPI buying was seen in financial services, IT, autos and capital goods.
"FPIs are unlikely to be major sellers, going forward since their earlier policy of continuous selling in banking have cost them heavily. When FPIs were sellers earlier, Domestic Institutional Investors (DIIs) were buyers and they gained from the FPI policy of sustained selling," VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said.
Srivastava said that inflation numbers as well as the US Federal Reserve's policy stance will continue to be the most important factors for FPIs to consider when investing in global markets, including India.
Furthermore, they will be closely monitoring how India's economic environment evolves, as well as how Indian equities compare in terms of valuation and risk-reward profile to other comparable markets, he said.
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"FPIs were selling earlier this year since the dollar was continuously rising. Now the market construct in the US has changed to 'rising equity, falling yields and falling dollar'. This is favourable for the continuation of FPI flows, going forward," Vijayakumar said.
On the other hand, foreign investors have pulled out nearly ₹2,300 crore from the debt market during the period under review.
Apart from India, FPI flows were positive for the Philippines, South Korea, Taiwan and Thailand so far this month.