Mumbai: Foreign institutional investors (FIIs) are showing fresh interest in Indian equities after weeks of heavy selling. Market experts say the worst phase of foreign selling appears to be over, helped by a stronger rupee, falling crude oil prices and rising uncertainty in other Asian markets.
During the last nine trading sessions between June 15 and June 25, FIIs bought Indian shares on five trading days in the cash market. Although the purchases were not very large, analysts believe this marks a clear improvement in investor sentiment.
Stronger Rupee Supports Foreign Investors
According to Dr VK Vijayakumar, Chief Investment Strategist at Geojit Investments Ltd., one of the biggest reasons behind this shift is the recovery in the Indian rupee.
The rupee, which had weakened to 96.96 against the US dollar on May 15, has now strengthened to around 94.40 per dollar.
He said foreign investors usually avoid selling when the rupee is gaining value because a stronger currency helps protect their investment returns.
Volatility in Korea and Taiwan Benefits India
Another important reason is the sharp volatility in South Korean and Taiwanese stock markets.
Dr Vijayakumar pointed out that the South Korean market recently fell by nearly 8 percent in a single day, forcing trading to be temporarily halted. Foreign investors who had made strong profits in South Korea and Taiwan have been reducing their exposure there.
As a result, many global investors are once again looking at India, even though corporate earnings remain relatively weak.
Lower Crude Oil Prices Bring Relief
The sharp fall in crude oil prices to below USD 73 per barrel has also boosted confidence.
Lower oil prices reduce India's import bill, improve the country's external financial position and ease concerns about the balance of payments. Analysts believe this has created a more stable environment for foreign investors.
Trade Deal Hopes Add to Optimism
Investor confidence has also been supported by expectations of a possible India-US trade agreement.
According to Ajit Mishra, Senior Vice President (Research) at Religare Broking, the return of selective FII buying has improved overall market sentiment. However, he cautioned that slowing domestic economic indicators and uncertainty over global interest rate decisions mean investors should continue to focus on quality stocks instead of making broad market bets.
Analysts expect global crude oil prices, developments in West Asia, future FII investment trends and progress on the proposed India-US trade agreement to remain the key factors influencing Indian markets in the coming weeks.
