FPIs turn net buyers in June, equity inflows at ₹26,565 crore, July starts on a positive note; know why

Foreign portfolio investors (FPIs) last month snapped their two-month selling streak and turned net buyers after stability returned to Indian markets with the 'VIX' volatility index falling. FPIs had halted their buying streak with the start of the new financial year 2024-25 (FY25). Volatility due to Lok Sabha elections 2024 and results, outperformance in Chinese markets and other global cues had earlier weighed on foreign investor sentiment.

FPI invested There was investment of Rs 7,962 crore in Indian equities and net investment stood at Rs 1,29,999 crore. 14,128 crore as of July 5, which includes debt, hybrid, debt-VRR and equity. In June, FPIs invested Indian equity inflows stood at Rs 26,565 crore and debt inflows stood at Rs 26,565 crore. According to data from National Securities Depository Limited (NSDL), total investments stood at Rs 14,955 crore in June. Rs 41,757 crore

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“For FY24, so far, FPIs have invested only An investment of Rs 11,162 crore has been made in equity. But during the same period, FPI investment in debt has been much higher. 74,928 crore. The inclusion of Indian government bonds in the JPMorgan EM Government Bond Index and front running by investors have contributed to widening this gap in equity and debt inflows,” said Dr VK Vijayakumar, chief investment strategist at Geojit Financial Services.

Will FPI flows continue in July?

FPIs bought heavily in telecom and financial services in the fortnight ended June 30. They were also buyers in auto, capital goods, healthcare and IT. According to market analysts, selling was witnessed in metals, mining and power, which had risen sharply in recent months.

An important feature of FPI flows is that their selling in India is due to external factors such as rising bond yields in the US and low valuations in other emerging markets. When this situation changes, they become buyers in India.

“In fact, in recent times they have been buying the same segments and stocks at prices higher than what they sold. This experience tells us that FPI selling in India is an opportunity for domestic investors,” said Dr VK Vijayakumar of Geojits.

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Market analysts believe that the investor fraternity is now re-energised to look at India as a preferred destination compared to other markets. They also point out that FPIs will continue to grow in India given the stable government system, favourable environment supported by inflation control, fiscal prudence and a visionary approach to make India a global hub for capital markets.

Milind Muchhala, Executive Director, Julius Baer India, said, “We believe India remains an attractive investment destination amid healthy economic and earnings growth momentum, and FPIs cannot afford to ignore the markets for long. In the event of a subdued global risk environment driven by rising expectations of rate cuts, this could lead to increased inflows into EM equities, and India is expected to emerge as one of the big beneficiaries of these flows.”

FPI Activity in Indian Markets

FPIs sold in May 2024 Indian equities saw inflows of Rs 25,586 crore, and debt inflows stood at Rs 25,586 crore. ₹ 8,761 crore. Uncertainty over the outcome of the 2024 Lok Sabha elections, higher yields on US bonds, high valuations of the Indian market and outperformance of Chinese stocks weighed on sentiment.

FPIs sold 8,671 crore in Indian equities in April and 10,949 crore was invested in the debt markets due to high US bond yields. However, they Indian equities will see inflows of Rs 35,098 crore during March 2024 – the highest inflows recorded in the first three months of 2024. FPI outflows initially eased in February 2024, until they became net buyers by the end of the month despite higher US bond yields.

Investing in Indian equities 1,539 crore in February 2024 and investment in the debt market increased to Rs Income during the month stood at Rs 22,419 crore. 19,836 crore rupees were bought in January. The inclusion of government bonds in the JP Morgan and Bloomberg debt index has increased the flow of foreign funds into the debt market.

FPIs broke their buying streak in January 2024 by turning massive sellers, as investments saw a sharp jump in December 2023 after reversing their three-month selling streak in November 2023.

However, flows picked up in December on strong global cues after the US Federal Reserve signalled the end of its tightening cycle and expressed hope of a rate cut in March 2024. This led to a decline in US bond yields and increased foreign fund flows into emerging markets like India.

For the full calendar year 2023, FPIs bought Indian equities saw investments worth Rs 1.71 lakh crore and total inflows stood at Rs 1.71 lakh crore. According to NSDL data, net FPI investment in debt, hybrid, debt-VRR and equity is Rs 2.37 lakh crore. Net FPI investment in the Indian debt market is Rs 2.37 lakh crore. By 2023 it will become Rs 68,663 crore.

Disclaimer: The views and recommendations expressed in this analysis are those of the individual analysts or broking companies and not of Mint. We strongly advise investors to seek advice from certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.

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