After remaining net sellers in equities for last two months (May and April), Foreign Portfolio Investors (FPIs) returned as net buyers in June with net inflows of ₹26,565 crore, data with depositories showed.

This marked the second highest monthly inflows in calendar year 2024. The highest monthly inflows was ₹35,098 crore in March 2024.

With the Modi 3.0 government in place and policy continuity more or less assured, FPIs have in June shrugged off the election related uncertainty and doubled down on Indian equities being net buyers in majority of sessions post June 10.

With the latest June 2024 net inflows of ₹26,565 crore, FPIs have yet again turned net buyers for the entire calendar year at ₹3,201 crore. Experts now project FPI inflows to increase going forward. 

A trigger for increased FPI inflows is the anticipated US Fed rate cut in second half this calendar year. At least one rate cut is expected in October-December 2024, enhancing the attractiveness of emerging markets including India among foreign investors. 

In May and April this year, FPIs had net sold ₹25,586 crore and ₹8,671 crore in equities. The year 2024 started with significant selling to tune of ₹25,744 crore in January, followed by modest inflows of ₹ 1,539 crore in February. 

VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said that FPI’s net investment of ₹26,565 crore in equity in June marks a reversal of their strategy of selling in the two preceding months. 

“Political stability despite the BJP not getting majority on its own, and the sharp rebound in markets aided by steady DII buying and aggressive retail buying, has forced the FPIs to turn buyers in India. It appears that FPIs have realised that selling in the most performing market would be a wrong strategy”, Vijayakumar said.

FPI buying can sustain provided there is no sharp up move in U.S. bond yields, he added.

First fortnight data in June from the NSDL shows FPI buying in realty, telecom and financials. FPIs were sellers in IT, metals and oil and gas. The FPIs are likely to continue the buying trend in financials, he added.

Vipul Bhowar, Director, Listed Investments,  Waterfield Advisors, said government’s continuity following the election results guarantees ongoing reforms. This has led to an improved GDP growth forecast, attracting FPI buying.

Looking ahead, attention will gradually shift towards the budget and Q1FY25 earnings, which could determine the sustainability of FPI flows, he added.

However, the FPI buying has been focused on a few specific stocks rather than being widespread across the market or sectors. This is because Indian equities are still considered overvalued by FPIs, Bhowar said.

FPIs are favouring the financial, auto, capital goods, real estate, and select consumer sectors. It is expected that FPIs will make selective investments in specific sectors and stocks instead of broad-based buying across the market, he added.

“While India would continue to be a preferred market for FPI flows, the actual inflows may not be the highest among emerging markets due to intermittent volatility and shifting global investor sentiments. However, the long-term outlook remains positive, providing reassurance about the stability of FPI flows in India”, Bhowar said.

Foreign brokerage Jefferies recently said in a research note that it expects FPI inflows into India to improve in second half of this calendar year as clarity on government policies emerge post Budget.

DEBT MARKETS 

Ahead of India’s inclusion in JP Morgan’s Global indices from June 28, FPIs had pumped in ₹14,955 crore in sovereign debt in month of June 2024. So far this calendar year, FPIs have pumped in ₹68,625 crore. 

Since September last year, when India’s inclusion was announced, foreign investment in Indian sovereign bonds has jumped by about $10 billion.

India is widely expected to in the next 12-18 months receive FPI investments of about $25-30 billion as a result of inclusion in JP Morgan’s biggest emerging market bond index and Bloomberg Emerging Market (EM) Local Currency Government Index.

“The primary goal of including the bond index is to attract foreign investment into the Indian debt market rather than the equity market. 

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

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