FPI inflows slowed a bit in July but remained positive; Will the momentum decline further?

While Foreign portfolio investors (FPIs) continued their buying spree in July, the momentum of inflows into equities slowed a bit with respect to June. From ₹47,148 crore inflows in June, FPIs bought equities worth ₹46,618 crore in July.

In the July meet, the US Federal Reserve signaled the possibility of more hikes going ahead and ruled out any rate cuts in the near term. Any more rate hikes will impact global liquidity and lead foreign investors to re-evaluate their investment decisions.

This is the fifth month of continuous inflows by foreign investors on the back of the country's steadily improving macroeconomic fundamentals. FPIs invested ₹47,148 crore in June, ₹43,838 crore in May, ₹11,631 crore in April and ₹7,936 crore in March. However, in the first 2 months of the current calendar year, FPI investments were in the red. They sold equities worth ₹28,852 crore in January and ₹5,294 crore in February.

Overall, in 2023 YTD, the FPIs have made inflows worth ₹1.23 lakh crore.

The sustained buying by FPIs has also driven the Indian benchmarks to multiple record highs in July. Nifty jumped as much as 2.9 percent in July, in the green for the fifth straight month, after a 3.5 percent rise in June, a 2.6 percent jump in May, a 4 percent rally in April and a 0.3 percent gain in March.

In terms of sectors, financials, automobiles, capital goods, real estate, and FMCG continue to attract the bulk of FPI investment.

Apart from equities, FPIs invested around ₹3,726 crore in the debt market in July. So far in 2023, foreign investors bought ₹20,448 crore in the debt markets.

Outlook

Now that the markets have hit multiple peaks and valuations have become expensive, experts believe that foreign investors' inflows might lose a bit of momentum going ahead, however, they will remain invested in Indian equities for the remainder of 2023.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services

FPI flows into India continue unabated in July, too. India is the largest recipient of FPI flows YTD among emerging markets. The selling in China continues. FPIs continue to invest in financials, automobiles, capital goods, realty and FMCG. FPI buying in these sectors has contributed hugely to the surge in prices of stocks in these sectors and the Sensex and Nifty scaling record highs. The concern, however, is the rising valuations. At high valuations, some negative triggers can lead to a sharp correction.

Sunil Nyati, Managing Director, Swastika Investmart

I anticipate strong FII flows continuing through FY24, driven by the weakness in the dollar index and near-peak interest rates in the USA. Moreover, investors' waning confidence in China has redirected foreign investments toward India, benefiting our economy.

Despite our relatively expensive valuations compared to peers, our robust fundamentals justify these premium prices. With favorable macroeconomic factors and the influx of foreign investments, India remains an attractive investment destination, likely to sustain its positive momentum in the global market.

Devarsh Vakil, Deputy Head of Retail Research, HDFC Securities

We expect the dollar to turn weak and that will lead to higher flows into emerging markets including India. India is likely to attract a higher proportion of emerging markets ex-Japan and Asian flows.

Siddarth Bhamre, Head of Research, Religare Broking

China may not be viewed the way it was pre-Covid. China may not grow at those high single-digit rates. So the same sort of allocation to China vis-à-vis India may not happen. However, from pre-Covid highs, our markets have rallied 50 percent while China has been languishing more or less around those highs. For now, FPI flows may continue.