After investing over ₹36,200 crore last month, foreign investors continued their positive momentum and have injected a net ₹10,555 crore in Indian equities so far in December amid stabilisation in oil prices and moderating US inflation.
“Going forward, FPI flows are expected to be volatile amid equity markets worldwide witnessing an increase in volatility as global central banks reiterate their intent to keep policy rates high for an extended period to curb elevated inflation in their respective economies,” said Shrikant Chouhan, head of equity research, (retail), Kotak Securities Ltd.
Further, capital flows will be dictated by global developments, particularly the trends in the dollar index and US bond yields. This, in turn, will be determined by the trajectory of US inflation, said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
According to data with the depositories, Foreign Portfolio Investors (FPIs) invested a net sum of ₹10,555 crore in equities during December 1-16.
This comes following a net investment of over ₹36,200 crore in November, primarily due to weakening of the US dollar index and positivity about overall macroeconomic trends.
Prior to this, foreign investors pulled out ₹8 crore in October and ₹7,624 crore in September, data with the depositories showed.
Manish P Hingar, founder of financial planning platform Fintoo, attributed the latest FPI flows in Indian equity markets to improving risk sentiment and stabilisation in oil prices. However, flows typically dry up after December 15 as foreign investors go on Christmas-New Year holidays, he added.
"With the inflation levels in the US moderating, the FPIs have been pumping funds in the Indian equities. This was done with the anticipation of the Fed easing off from its aggressive rate hikes," Sumit Chanda, founder and CEO, JARVIS Invest, an AI-based investment advisory platform, said. However, the US Fed in its latest meeting increased the benchmark rate by 50 bps. It has not eased off from its hawkish stance and is expected to increase the rates further. The result of this was visible in the Indian markets which corrected by almost 1.2 per cent in a week's time, he noted.
In terms of sectors, FPIs have been buyers in financials and capital goods and sellers in telecom. Overall, FPIs have pulled out a net sum of ₹1.22 lakh crore from the equity markets so far in 2022.
"Despite this massive FPI selling, the Nifty is up by over 5 per cent so far for 2022. The fact that FPI selling has been absorbed by DII and retail buying is a reflection of the rising clout and maturity of domestic investors," Geojit's Vijayakumar said.
On the other hand, foreign investors have pulled a net sum of ₹2,180 crore from the debt markets during the month.
Barring India, FPI flows were negative across emerging markets such as the Philippines, South Korea, Taiwan, Thailand and Indonesia so far in December.