Foreign portfolio investors (FPIs) have displayed unwavering confidence in Indian markets, extending their investment spree for the fifth consecutive month. In July so far, FPIs have pumped 30,600 crore into Indian equities. This brings the total inflow into the equity market to ₹1.07 lakh crore so far this year, as per NSDL data.
This robust inflow sharply contrasts with the previous year, as FPIs offloaded Indian equities worth ₹1.21 lakh crore in CY22, marking the highest yearly outflow since the 2008 global financial crisis.
FPIs began CY23 with a negative outlook, withdrawing ₹28,852 crore from Indian equities, representing the worst outflow since June 2022. However, in the subsequent month, the pace of selling has slowed compared to January, with a withdrawal of ₹5,294 crore.
However, they turned bullish in March by infusing ₹7,936 crore and extended their optimism in April by pouring an additional ₹11,631 crore into Indian equities. This trend continued, with FPIs purchasing Indian stocks worth ₹43,838 crore in May and ₹47,148 crore in June.
They have been steadily buying in financial services, automobiles, capital goods, and construction. Recently, they have stepped up buying in FMCG and power. On the flip side, the selling trend in IT continues.
These sustained investments by FPIs have propelled Indian benchmark indices to reach historic highs, with the upward trajectory persisting and fresh record highs being set regularly.
Why do FPIs keep investing in Indian equities?
The major reason for the sustained FPI flows into India is the reversal in FPI strategy from 'Sell India, Buy China' to ‘Buy India, Sell China’.
"During the first 2 months of CY23, FPIs adopted the ‘Sell India, Buy China’ strategy, which led to massive flows to China, triggered by China’s opening up after Covid and expectations of a revival in growth and earnings," said Dr V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
"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 those of India improved. The Chinese economy is struggling, and growth is expected to be muted for many years to come," he added.
On the other hand, India’s macros are steadily improving, he said, 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’, he stated.
He also pointed out that the decline in the dollar index to below 100 on June 14, the lowest level in one year, is favourable to emerging markets.
Will the trend continue?
According to Dr V K Vijayakumar, the valuations in China (PE is 9) is hugely attractive now compared to valuations in India (PE is around 20) and, therefore, the ‘Sell China, Buy India’ policy of FPIs cannot continue for long.
In addition, he also stated that the 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.
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