Foreign Portfolio Investors (FPIs) are turning steady buyers as they bought Indian equities worth ₹6,139 crore so far this month driven by strong economic growth, market resilience and decline in US bond yields. This came following a modest investment of ₹1,539 crore in February and massive outflow of ₹25,743 crore in January, data with the depositories snowed.
"FPI inflows have shown a positive trend as compared to the previous month. Thanks to the recent announcement of Q3 GDP numbers at 8.4%, persistence performance of large Indian corporates being major factors for turning the tide green for the Indian equity market," Manoj Purohit, Partner and leader – FS Tax, Tax and Regulatory Services, BDO India, said.
On the regulatory front, announcements such as removal of UAE from the grey list, SEBI's consultation paper for easing disclosures norms for regulated FPIs have been the major catalysts to put India on the forefront for potential long term investments for the foreign fraternity, he added.
VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, attributed this renewed interest in Indian equities to three reasons — resilience of Indian markets, steady drop in the US bond yields (the 10-year yield has declined from above 4.3% to 4.08% now) and strong GDP growth. These positive developments and the sustained flow of funds into the market — both directly and through institutions — can keep the market resilient.
"However, high valuations are a matter of concern. Valuations in the mid and small cap segments are excessive and unjustifiable. Correction in this segment is only a matter of time," Vijayakumar said. Apart from equities, FPIs have injected ₹1,025 crore in the debt market during the period under review. This came in the backdrop of Bloomberg announcing India's bonds inclusion in its Emerging Market (EM) Local Currency Government Index and related indices from January 31 next year.
Moreover, FPIs have been injecting money in the debt markets for the past few months driven by upcoming inclusion of Indian government bonds in the JP Morgan Index. They infused ₹22,419 crore in February, ₹19,836 crore in January, and ₹18,302 crore in December.
JP Morgan Chase & Co. in September last year announced that it will add Indian government bonds to its benchmark emerging market index from June 2024. This landmark inclusion is anticipated to benefit India by attracting around $20-40 billion in the subsequent 18 to 24 months. This inflow is expected to make Indian bonds more accessible to foreign investors and potentially strengthen the rupee, thereby bolstering the economy.
Overall, the total outflow for this year so far stood at over ₹18,000 crore in equities and an inflow of ₹43,280 crore in debt market.
