FPIs Resume Buying Indian Shares with a Rs 1,433 Crore Investment in November

Following a period of persistent offloading of Indian stocks over the past several weeks, Foreign Portfolio Investors (FPIs) have made a comeback as buyers in the Indian equity market, channeling a sum of Rs 1,433 crore into the sector since the beginning of November. This change in direction is chiefly attributed to the fall in yields of US treasury bonds and a dip in global crude oil prices, according to data from depositories.

Until mid-November, FPIs were net sellers, but this trend took a positive turn on the 16th and 17th of November. Analysts point to the domestic festive season's buoyancy as a factor encouraging FPIs to re-engage with the Indian market. Industry expert Himanshu Srivastava, Associate Director - Manager Research at Morningstar Investment Adviser India, mentioned that apart from festive cheer, lower US Treasury bond yields and softening oil prices helped alleviate the conditions that earlier contributed to the sell-off.

Market corrections during this period served as a catalyst for FPIs to identify and capitalize on select investment opportunities. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, observed that the Indian market's resilience, along with strong performance on favorable days, prompted FPIs to reassess their strategies, culminating in their reentry into the market midway through November.

A Shift in Market Sentiment

Market sentiment has shifted as speculations mount that the U.S. Federal Reserve may halt its rate hikes and, foreseeing a potential reduction in interest rates by 2024, will attract more inflows from FPIs into emerging economies like India. Should the US inflation continue to trend downward, rate cuts by the Federal Reserve around mid-2024 are possible, thereby potentially bolstering FPI investment into emerging markets.

Prior to this, FPIs had divested Rs 24,548 crore in October and another Rs 14,767 crore in September. Before experiencing these outflows, there was a continuous six-month streak, from March to August, where FPIs invested a hefty Rs 1.74 lakh crore.

Broadening Perspectives

The sell-off that started in early September among FPIs was driven by several factors including uncertainty around the direction of US interest rates, the upsurge in treasury bond yields, spiking crude oil prices, and heightened geopolitical unrest. The period also saw foreign investments in Indian debt increase substantially, partially influenced by the comparing returns between Indian and US bonds. Bhuvan Rustagi, COO and co-founder of Per Annum and Lendbox, highlighted that Indian debt yields at around 7.25 percent are more enticing compared to US yields hovering around 3.8 percent.

To date, the aggregate investment by FPIs in Indian equity and debt markets for the year has surged to approximately Rs 97,405 crore and Rs 47,800 crore, respectively. Looking ahead, FPIs are expected to show a preference for investing in sectors such as automotive, capital goods, telecommunications, pharmaceuticals, IT, and construction-linked industries.

FPIs, Investment, Equities