FIIs will go on a buying spree in June; will this buying spree continue despite valuation concerns?


Story continues below advertisement


Ahead of the Union Budget and India's inclusion in JP Morgan's bond index, foreign institutional investors (FIIs) turned net buyers in June, purchasing Indian stocks worth about Rs 26,565 crore in the month.

Investors have ignored election-related concerns, which has led to this buying. Analysts say that better GDP forecasts and strong earnings of Indian companies have also increased the interest of FIIs.

Story continues below advertisement

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said political stability despite the BJP not getting a majority on its own, and the sharp surge in the markets due to sustained buying by DIIs and aggressive retail buying have forced FPIs to become buyers in India.

“FPIs appear to have realised that selling in the best-performing market would be a wrong strategy,” he said.

Also Read | IPO frenzy: 3 new issues and 11 listings to hit Dlal Street next week

Story continues below advertisement

Continuity of government after the election results ensures continuity of reforms. This has improved the GDP growth forecast, attracting foreign portfolio investment (FPI) buying.

However, according to Vipul Bhowar, director, listed investments, Waterfield Advisors, FPI buying has remained focused on a few specific stocks rather than being broad-based across the market or sectors.

“This is because Indian equities are still considered overvalued by FPIs. FPIs are preferring financials, auto, capital goods, real estate and select consumer sectors.

Story continues below advertisement

Though analysts believe the markets could turn volatile once again as high valuations and no change in interest rates could lead to investors booking profits at regular intervals, FPIs are expected to make selective investments in specific sectors and stocks rather than make broad purchases in the market.

Vijayakumar said FPI buying may continue in the near future, provided there is no sharp jump in US bond yields. India's inclusion in the JP Morgan Bond Index is definitely a positive. Debt inflows so far for 2024 are Rs 68,674 crore.

Also Read | Dalal Street Week Ahead: FOMC minutes, auto sales, FII activity are among 10 key factors to watch next week

“In the long term this will reduce the cost of borrowing for the government and the cost of capital for corporates. This is positive for the economy and hence the equity market,” he said.

The primary objective of including the bond index is to attract foreign investment in the Indian debt market rather than the equity market.

“As foreign investors become more familiar with the Indian fixed income market, they may start looking for other investment opportunities, opening up new avenues for growth and diversification, which should be a source of hope for the future of FPIs in India,” Bhowar said.

Analysts believe that post the election result, FII focus will gradually shift to the Budget and Q1 FY25 earnings, which could determine the sustainability of FPI flows.

“While India will continue to be a preferred market for FPI flows, actual flows may not be the highest among emerging markets due to intermittent volatility and changes in global investor sentiment,” he said.

Also Read | July month a key moment for equity markets

So far this year, FIIs have bought shares worth Rs 129,046 crore, while DIIs have bought shares worth Rs 236,325 crore during the same period. Bhowar said that the long-term scenario remains positive, which reassures about the stability of FPI flows in India.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before making any investment decisions.


Leave a Comment

“The Untold Story: Yung Miami’s Response to Jimmy Butler’s Advances During an NBA Playoff Game” “Unveiling the Secrets: 15 Astonishing Facts About the PGA Championship”