Foreign Investors Return To Indian Equities, And Invest Rs 1,100 Crore In July

There has been a respite from the continuous sell-off by foreign investors (FPIs), as they have become net buyers in the Indian stock market so far this month with an investment of around Rs 1,100 crore. Foreign investors made a net withdrawal of Rs 50,145 crore from equities in June. After which there has been a return of foreign investors. Data from the depositories shows that this was the highest net outflow since March 2020, when they pulled out Rs 61,973 crore from equities. There has been an exodus of foreign portfolio investors (FPIs) from the Indian equity markets in the last nine months since October 2021.

Shrikant Chauhan, Head-Equity Research (Retail), Kotak Securities, said that in the context of rising inflation and tight monetary policy, we expect FPI inflows to remain volatile. According to data from depositories, FPIs made a net investment of Rs 1,099 crore in Indian equities during July 1-22. They have slowed down their sales significantly and have also been buyers for several days this month. A declining trend in net outflows over the past few weeks and occasional buying indicates that the level of net outflows from FPIs has come down.

Another factor that helped net inflows was the expectation of a less aggressive rate hike by the US Federal Reserve in its upcoming policy meeting than before. Himanshu Srivastava, Associate Director- Manager Research, Morning Star India, said that this has also led to a softening of the dollar index, which is a good sign for emerging markets like India. He said that the possibility of a recession in America is also less or its effect will be less. Besides, the recent corrections in the markets have also provided a good buying opportunity for FPIs.

Echoing similar views, TradeSmart President Vijay Singhania said poor economic data in the US has given hope that the Federal Reserve may not hike rates at the pace envisaged earlier. Also, better-than-expected corporate results have also helped investors to do better. He said the Russia-Ukraine deal to open borders for food grains exports is also a big boost.

VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said that it appears that the INR depreciation is almost over for now. The dollar index which went above 109 has now come down to 107.21. This is one of the factors that have contributed to the change in the FPI strategy. He further added that the current trend is likely to continue in the near future. However, much will depend on US news related to the economy and markets.

So far this year, FPIs have pulled out around Rs 2.16 lakh crore from equities. This was the highest net withdrawal by him to date. Earlier, he had withdrawn Rs 52,987 crore in the entirety of 2008. According to Srivastava of Morningstar India, current buying by FPIs cannot be considered as a change in trend or that FPIs have made a complete comeback. If the US Fed rate hike becomes more aggressive than it is now, this flux trend could quickly reverse.

Apart from equities, FPIs invested a net amount of Rs 792 crore in the debt market during the period under review. Apart from India, FPI inflows into South Korea and Thailand were positive, while it was negative for Taiwan, Indonesia, and the Philippines during the period under review.