After two months of relentless selling, foreign portfolio investors shifted their stance on Indian equities, turning net buyers in the first week of December with net investments totalling ₹24,453 crore, according to depository data.
This was in sharp contrast to their net outflows of ₹21,612 crore in November 2024 and massive net withdrawal of ₹94,017 crore recorded in October 2024.
Prior to the latest turnaround, FPIs had remained net sellers for eight consecutive weeks. In September, FPIs had bought Indian equities worth ₹57,724 crore.
The robust buying was prompted by BJP-led combine making a strong comeback in Maharashtra and US equity benchmarks clocking new all time highs.
Taking the latest robust December inflows into account, FPIs have so far this calendar year pumped in ₹9,435 crore in India as compared to net outflows of ₹15,019 crore at the end of November, depositories data showed.
V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said that FPIs turning buyers in early December, in total reversal of their sustained selling strategy during the last two months, has altered the market sentiments.
“In December, through 6th, FPIs have turned buyers having bought equity for ₹17,921 crores through exchanges. Including the purchases through the primary market, the total FPIs buying through December 6th stood at ₹24,453 crores”, he said.
This is a clear change in FPI strategy in India. “It can be argued that the stage of relentless FPI selling is over”, Vijayakumar added.
Himanshu Srivastava, Associate Director – Manager Research, Morningstar Investment Research India, said “Looking ahead, the flow of foreign investments into Indian equity markets will hinge on several key factors. These include the policies implemented under Donald Trump’s presidency, the prevailing inflation and interest rate environment, and the evolving geopolitical landscape”.
Additionally, the third-quarter earnings performance of Indian companies and the country’s progress on the economic growth front will play a crucial role in shaping investor sentiment and influencing foreign inflows, he said.
Srivastava said there could be few probable reasons for this sharp u-turn by FPIs towards Indian equities in December after selling around $14 billion between October and November.
The recent correction in the market could have prompted them to build some exposure.
Uncertainty over Chinese equities on the back of proposed tariffs by US President-elect Donald Trump on China and other several nations could have prompted FPIs to look back at Indian equities which offers a much clearer long term growth prospects, despite relatively high valuations, he said.
Additionally, FPIs might have decided to rejig their portfolios a bit towards India given suboptimal GDP number would have fanned hopes that RBI might soon have to start cutting rates to boost the economy, which in turn might boost the equity markets.
For the uninitiated, in its recent monetary policy review on December 6, 2024, RBI had cut CRR by 50 bps to 4 per cent, while keeping repo rate unchanged at 6.5 per cent, he noted.