Foreign portfolio investors (FPIs) have bought Indian equities worth ₹47,148 crore in the month of June, the highest in 10 months since August 2022. FPIs had pumped in ₹51,204 crore in August last year.
This is the fourth month of continuous inflows by foreign investors on the back of the country's steadily improving macroeconomic fundamentals. FPIs invested ₹43,838 crore in May 2023, ₹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 ₹76,406 crore.
The sustained buying by FPIs has also driven the Indian benchmarks to multiple record highs in June. Nifty jumped as much as 3.5 percent in June, in the green for the fourth straight month, after a 2.6 percent rise in May, a 4 percent rally in April and a 0.3 percent gain in March.
In terms of sectors, FPIs continued to invest in financials, automobiles, capital goods and construction-related stocks.
Apart from equities, FPIs invested around ₹9,200 crore in the debt market in June. So far in 2023, foreign investors bought ₹16,722 crore in the debt markets.
Now that the markets have hit a peak and valuations are high, experts believe that foreign investors' inflows might become subdued going ahead. While they will continue investing, the FPIs may turn a bit cautious, believe experts.
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services
Sustained FPI flows triggered by India’s steadily improving macros have taken markets to record highs. The major reason for the sustained FPI flows into India is the reversal in FPI strategy.
January and February 2023 saw massive flows to China triggered by China’s opening up after Covid and expectations of a revival in growth and earnings. The FPI strategy was ‘Sell India, Buy China’. FPI investment in India in January and February combined was negative ₹34146 crores. This strategy was based on the view that China is cheap and India is expensive. This strategy proved to be a mistake since the prospects of China deteriorated and that of India improved. The Chinese economy is struggling and growth is expected to be muted for many years to come.
On the other hand, India’s macros are steadily improving, and GDP and corporate earnings growth have the potential to improve further from here. So FPIs have reversed their strategy to ‘Buy India, Sell China’. FPIs invested ₹47,148 crore in June on top of the ₹43,838 crore in May. This is a big change. Also, it is important to note that Japan is attracting the largest FPI flows this year in response to reforms and improving economic prospects after many years. FPI money is chasing performance and prospects. FPIs continued to invest in financials, automobiles, capital goods and construction-related stocks.
Valuations in India are rich, from a short-term perspective. Therefore, even while continuing to invest in India, FPIs are likely to turn a bit cautious, going forward.
Ajit Banerjee, CIO of Shriram Life Insurance Company
FPIs have turned net buyers in both debt and equity markets after offsetting the heavy selling done by FPI in the month of January’23. As of June’23, FPIs have become net buyers in 2023. Among a few reasons behind FPIs continuing to invest money in India is a turnaround in sentiments that global hawkishness is nearing its peak though may not be at the end immediately. With the macro environment stabilizing, we have started seeing global flows chasing returns. Earnings are likely to be healthy led by margin expansion for domestic facing sectors. With earnings likely to grow faster than emerging markets, foreign investors should be interested in our market.
Umesh Kumar Mehta, CIO, Samco Mutual Fund
India continues to be resilient compared to other global economies and there is a chance that the interest rate cycle might turn sooner rather than later, FPI flows could continue flowing into India and other emerging countries, especially in the coming months. However, the intensity of flows will vary depending on a lot of global factors and moving stones.