In April, Indian stock markets witnessed an inflow of Rs 11,630 crore from foreign portfolio investors (FPIs) due to the fair valuation of shares and the robust performance of the Indian rupee.
This followed a net investment of Rs 7,936 crore in equities by FPIs in March, primarily attributed to significant investments made by US-based GQG Partners in Adani group companies. However, when adjusting for GQG’s investment in the Adani Group, the net inflow was negative.
The future projections for FPI inflows indicate a volatile trend due to the US Federal Reserve’s stringent monetary policy. As the US Fed minutes indicated, an interest rate trek of 25 basis points in the next policy meeting could hurt FPI investments. , said Sonam Srivastava, founder of (IAFWR) investment advisory firm Wright Research.
Nevertheless, he stated that the stability of the Indian economy and its attractive valuations compared to other emerging markets could potentially continue to lure FPIs toward investing in Indian equities.
In 2023, FPIs have withdrawn Rs 14,580 crore from Indian equities while investing Rs 4,268 crore in the debt market during the same duration.
During the initial two weeks of April, Foreign Portfolio Investors (FPIs) exhibited robust purchasing behavior, signaling a revitalized positive sentiment toward the Indian stock market. Nevertheless, this optimism was subdued in the third week of the month owing to apprehensions surrounding elevated interest rates in the United States and feeble economic indicators.
According to Anand Dalmia, the co-founder and CBO of Fisdom, they resumed their aggressive buying strategy in the final days of April. Furthermore, Dalmia expressed confidence that foreign capital inflows will persist in the long run.
Srivastava said key factors for the month ahead include stabilization of the global scenario, easing fears about the banking situation in the US and Europe, fair valuation of Indian stocks after consolidation and India’s ability to generate healthy returns in the medium term. . and longer duration. Long-term horizon.
Additionally, another crucial macroeconomic factor that has influenced the FPI perspective is the performance of the Indian rupee. VK Vijayakumar, the Chief Investment Strategist at Geojit Financial Services, noted that the domestic currency, which had touched a nadir of 82.94 against the US dollar in February 2021, has since appreciated to 81.75.
Furthermore, India’s current account deficit is gradually shrinking, and if this trend persists, it could bolster the rupee even further. VK Vijayakumar suggested that this could attract more inflows from FPIs into India.
In addition to equities, FPIs have allocated Rs 805 crore towards the debt market during the period mentioned above.
Divam Sharma, Founder of Green PMS Portfolio, said, “As soon as the rate hike stops, money will start shifting from debt to equity to beat inflation.
With this, FPIs have pulled out Rs 14,580 crore from equities in 2023 and invested Rs 4,268 crore in debt markets during this period.
Fisdom’s Dalmia said mid-April data on FPI inflows showed that finance, auto components and information technology sectors were particularly attractive to foreign investors.
Foreign Portfolio Investors (FPIs) have invested a total of Rs. 37,631 crore Indian shares during FY 2022-23. The exit is attributed to aggressive rate hikes by central banks worldwide. In the last financial year, FPI earned a record Rs 200 crore. 1.4 lakh crore from the Indian stock market.
However, before exiting in FY 2020-21, FPIs raised a record Rs. 2.7 lakh crore in Indian stocks. In 2019-20, FPIs invested Rs. 6,152 crore in Indian stocks.
The current trend of FPI outflows from Indian stocks is worrying as they play an important role in providing liquidity and depth to the Indian stock market. It is worth noting that these outflows have come despite India’s relatively strong economic fundamentals and the government’s efforts to implement structural reforms to spur economic growth.
Market analysts suggest that the outflow of FPIs can be attributed to concerns about rising inflation and rates along with the prevailing risk-averse sentiment among investors globally.