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After turning net sellers in April and May, foreign portfolio investors are back betting big on India’s growth story pumping in ₹12,416 crore in June into the capital markets even as retail investors booked profit.
The sharp fall in fresh Covid cases across the country and the acceleration in vaccination drive have boosted FPIs’ confidence; they had pulled out ₹10,494 crore in the previous months.
Worry over valuation
High valuations and concerns about the economic consequences of the second Covid wave triggered the FPI selling in April and May.
VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said the sheer momentum of the Indian market and the better-than-expected Q4 earnings have encouraged FPIs to come back strongly. High delivery volumes in IT and metal stocks indicate strong institutional buying. Foreign funds have turned bullish on India even as a new delta variant of Covid is threatening to scuttle the economic revival. The excess liquidity in global markets has been driving the Indian equity market.
“FPIs have been net buyers in Indian equities in June 2021 till date. They have bought to the tune of ~₹3,842 crore as they turned optimistic on steady increase in business activities after various States continued to relax restrictions. An increase in the pace of vaccination in the past week also helped improve investor sentiment,” said Shrikant Chouhan, Executive Vice-President, Equity Technical Research at Kotak Securities, in a recent research report.
Interestingly, the RBI had expressed concern over a possible bubble in equity markets with valuation of company stocks gaining much ahead of the growth in their earnings. FPI bullishness on India has pushed Nifty50’s P/E to 30.6x, helping it trade at a 25 per cent premium to its 5-year average, by outpacing other emerging market peers.
Debt market
However, the debt market presents a contrasting picture with FPIs selling every month. In 2021, FPIs have sold debt worth ₹ 20,649 crore. Rupee depreciation and rising bond yields in the US are headwinds for Indian debt, Vijayakumar added. Overall, foreign investors have pumped in ₹57,289 crore so far this year against withdrawal of ₹1,04,482 crore during the January to June 2020.
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