Foreign portfolio investors (FPIs) infused Rs 11,630 crore in the Indian equity markets in April on the reasonable valuation of stocks and appreciation in the rupee.
This came after FPIs infused a net sum of Rs 7,936 crore in equities in March, mainly driven by bulk investment in the Adani Group companies by the US-based GQG Partners. However, if one adjusts for the investments of GQG in Adani Group, the net flow was negative.
Going forward, the outlook for FPI flow is expected to remain volatile due to the tight monetary policy of the US Federal Reserve. The interest rate hike by 25 basis points in the coming policy meeting as indicated by the US Fed minutes, could impact FPI investments, Sonam Srivastava, founder of investment advisory firm Wright Research, said.
However, the stability of the Indian economy compared to other emerging markets and reasonable valuations may continue to attract FPIs to Indian equities, she added.
According to data from the depositories, FPIs started the current financial year on a positive note, and invested Rs 11,630 crore in Indian equities in April.
In the first half of April, FPIs showed strong buying activity, indicating a renewed sense of optimism in the Indian equity market. However, this optimism was dampened in the third week of the month due to concerns about elevated interest rates and weak economic indicators in the US.
Once again they turned aggressive buyers in the last few days of April, and the inflow of foreign capital is likely to continue in the longer term, Anand Dalmia, co-founder and CBO of Fisdom, said.
Srivastava said the prime factors for the inflow in the month include stabilisation of the global scenario, moderation in apprehensions about the banking crisis in the US and Europe, reasonable valuation of Indian equities following consolidation and India's potential to deliver healthy returns over the mid-to-long term horizon.
In addition, another important macro factor that has tilted the FPI approach is the appreciation of the rupee. The local currency, which had touched a low of 82.94 to a dollar in late February this year, has now appreciated to 81.75, VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said.
Moreover, India's current account deficit is declining, and if this trend continues the rupee may appreciate further. FPIs are likely to bring more inflows into India in this context, he added.
Apart from equities, FPIs have put in Rs 805 crore in the debt market during the period under review.
"As the rate hike stops, the money will start moving in from debt to equities to beat inflation. India is presenting a better opportunity among developed markets and other emerging markets," Divam Sharma, founder of Green Portfolio PMS, said.
With this, FPIs have taken out Rs 14,580 crore from equities in 2023 so far and invested Rs 4,268 crore in the debt markets during the period.
The mid-April data on FPI inflows revealed that the financials, automobile components, and information technology sectors were particularly attractive to foreign investors, Fisdom's Dalmia, said.
Overall, FPIs pulled out a net sum of Rs 37,631 crore from Indian equities in 2022-23 on aggressive rate hikes by central banks globally and a record Rs 1.4 lakh crore in 2021-22. Before these outflows, FPIs invested a record Rs 2.7 lakh crore in equities in 2020-21 and Rs 6,152 crore in 2019-20.