After a nine-month selling spree, foreign investors have turned net buyers in the past 3 sessions in July on the back of the recent correction in equity markets which provided them with a good buying opportunity. In these 3 sessions, they have made net investments worth ₹2,905 crore.
However, for the full week (July 4-8), the FPIs remained net sellers, offloading equities worth ₹3,607 crore. The foreign investors were net sellers in the first 2 sessions of the week, however, they turned net buyers in the latter half of the week buying worth ₹2,431 crore on July 6, ₹99 crore on July 7 and ₹375 crore on July 8.
Before this, the foreign investors were net buyers in the first week of April (4-8 April), when they invested worth ₹8,275 but for the month they remained net sellers selling worth ₹22,688 crore.
In 2022 so far, the foreign investors have sold worth ₹2.32 lakh crore and since October 2021, this figure is worth 2.76 lakh crore.
However, will the trend of foreign investors turning net buyers continue?
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services said, "The sharp correction in crude, commodities like metals, and the declining trend in edible oil indicate that inflation will come under control soon. Taking cues from these indicators the bulls have again turned buyers and the near-term structure of the market has turned clearly bullish now. The crash in commodities and RBI's latest initiatives to increase foreign currency inflows have the potential to arrest further depreciation in rupee. This means FIIs are unlikely to sell more. This is positive for markets."
The markets have also witnessed a recovery in July, rising around 2.5 percent after a 5 percent decline in June and a 9 percent decline in the first half of 2022.
On Wednesday, the Reserve Bank of India announced measures to boost inflows of foreign exchange and to stem the slide of the rupee. The central bank raised the overseas borrowing limits for companies and liberalised norms for foreign investments in government bonds. It also increased the External Commercial Borrowing (ECB) limit under the automatic route from $750 million or its equivalent per financial year to $1.5 billion and eased the norms for FPI investments in the debt market.
Economic Affairs Secretary Ajay Seth said the measures taken by Reserve Bank of India (RBI) will increase inflows of overseas funds and help in strengthening the rupee against the US dollar. He added that the RBI measures, including External Commercial Borrowing (ECB), are transitory and for a shorter duration, and would help in boosting the foreign currency inflows into the country.
However, Nishit Master, Portfolio Manager, Axis Securities believes that just three days’ data is not enough to conclude that there is a change in trend concerning FII flows but it seems that the quantum of outflows will come down significantly, as India remains in a sweet spot for growth vs other developed and developing markets. He added that as and when FII’s expectation of global growth and liquidity conditions stabilizes, India should see sustained FII inflow.
Meanwhile, Sunil Damania, Chief Investment Officer at MarketsMojo noted that India is poised to be among the fastest-growing economies in the world, appealing to FIIs to return to Indian equity markets. Moreover, with RBI's recent measures aiming to boost foreign inflows, the Rupee could be bolstered to support market sentiments, he added.
"In addition, attractive valuations and easing commodity prices will help resume the inflow of FII funds. Also, given the country's fundamental positioning and structural appeal among emerging economies, we believe India's political stability and policy support will further induce economic growth. Furthermore, a downward correction in crude prices could reduce inflationary pressures, percolating into India Inc.'s growth earnings, thus making India a compelling story for FII investments," explained Damania.
He also predicted that in FY23, FIIs will have a net positive inflow.
