Foreign portfolio investors’ (FPIs) net investments in Indian equities have touched a six-month high in May so far, with analysts saying the momentum is expected to continue on the back of increased favour for Indian securities.

After net selling Indian equities for the first two months of 2023, FPIs net invested ₹23,152 crore in equities as of May 12, taking total net investments for the month to ₹22,902 crore — also a six-month high.

FPIs were net buyers of equities on all days of the month, with the highest securities worth ₹6,469 crore being bought on the first trading day, May 2. FPIs had net bought shares worth ₹11,631 crore in April, when net investments had stood at ₹13,545 crore.

Sector bets

Prior to this, net FPI investments were the highest in November 2022, wherein they had put ₹36,239 crore in equities, taking total investments for the month to ₹33,847 crore.

FPIs had been selling Indian equities due to higher valuations compared to other markets, however, now there is again a shift in favour of India as an emerging market destination due to its strong macro-economic conditions, analysts said.

“Financials continue to be the favourite sector of FPIs. They were buyers in capital goods and autos, too. Since the rupee is strong and the dollar is expected to decline in the near term, FPIs are likely to continue buying in India,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

So far in 2023, FPIs have net bought Indian shares worth ₹8,572 crore, as of a part of total net investments of ₹11,663 crore.

Major drivers

Fewer future rate hikes by the US Federal Reserve, stability in the US financial services sector and expectations of high RoE and earnings growth visibility of Indian companies are driving the current flows, market participants said, adding that Indonesia, Thailand and China are also seeing attracting flows amid concerns of a global slowdown.

In India, domestic economy-oriented sectors such as capital goods, power, sugar, financials, industrials, real estate, building materials, automobile and chemicals are likely to see the most FPI flows.