The relentless selling by foreign investors appears to have taken a breather as they have turned net buyers so far this month with an investment of nearly Rs 1,100 crore in the Indian equity market. This comes following a net withdrawal of Rs 50,145 crore from equities in June. This was the highest net outflow since March 2020, when they had pulled out Rs 61,973 crore from equities, data with depositories showed.
There has been an exodus of Foreign portfolio investors (FPIs) from Indian equity markets over the last nine months, since October 2021. “Given the headwinds in terms of rising inflation and tightening monetary policy, we expect FPI flows to remain volatile,” Shrikant Chouhan, Head – Equity Research (Retail), Kotak Securities, said.
According to data with depositories, FPIs invested a net amount of Rs 1,099 crore in Indian equities during July 1-22. They have significantly slowed down their relentless selling and have even turned buyers for several days this month particularly during the last few days.
The declining trend of net outflow over the last few weeks coupled with occasional buying does signify that the net outflow from FPIs have bottomed out. The net inflow was driven by better earnings and decline in commodity prices, Chouhan said.
Another factor that helped in net inflow was expectation of less aggressive rate hike by the US Federal Reserve in its upcoming policy meeting than what was anticipated earlier. This also softens the dollar index, which augurs well for emerging markets like India, Himanshu Srivastava, Associate Director – Manager Research, Morningstar India, said.
There is also a reduced possibility of recession in the US or it would be less impactful. In addition to that, the recent corrections in the markets have also provided a good buying opportunity for FPIs, he added. Echoing similar views, Vijay Singhania, chairman at TradeSmart, said, “poor economic data in the US has given hope that the Federal Reserve might not increase rates at the speed as envisaged earlier along with better-than-expected corporate results also helped improve investor confidence”.
Finally, Russia opening the tap to allow natural gas flow to Europe has raised hope of a truce going forward. The Russia-Ukraine deal of opening the border for food grains export is also a big boost, he added. “It appears that INR depreciation is almost over for now. The dollar index which had moved above 109 is now down to 107.21. This is one of the factors that have contributed to the change in FPI strategy,” VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said.
He, further, said that the present trend is likely to continue for the near-term. However, a lot will depend on the news from the US, relating to the economy and markets. So far this year, FPIs pulled out around Rs 2.16 lakh crore from equities. This was the highest ever net withdrawal by them. Before that, they withdrew Rs 52,987 crore in the entire 2008, data showed.
According to Morningstar India’s Srivastava, the current buying by FPIs cannot be construed as a change in trend, or that FPIs have made a complete comeback. The scenario is evolving, and it may take a while for clarity to emerge. For instance, if the US Fed rate hike turns out to be more aggressive than what is accounted for at the moment, then this flow trend may quickly reverse.
In addition to equities, FPIs infused a net amount of Rs 792 crore in the debt market during the period under review. Apart from India, FPI flows were positive in South Korea and Thailand, while it was negative for Taiwan, Indonesia and Philippines during the period under review.