Foreign portfolio investors (FPIs) started December on a cheerful note after finally having reversed their selling streak in November, emerging net buyers in the Indian stock market. The inflow has intensified on strong global cues after the US Federal Reserve signalled the end of its tightening cycle and raised expectations of a rate cut in March 2024. This led to a crash in US bond yields and triggered foreign fund inflows into emerging markets like India.
FPIs have bought ₹42,733 crore worth of Indian equities and the total inflow stands at ₹51,787 crore as of December 15, taking into account debt, hybrid, debt-VRR, and equities, according to National Securities Depository Ltd (NSDL) data. FPIs heavily bought stocks in banking and IT segments, according to analysts.
“A major development in December, particularly after the state election results, is FPIs turning buyers. This trend has intensified after the Fed signalled the end of the tightening cycle and indicated possibly three rate cuts in 2024. This triggered a crash in US bond yields with the 10-year going below 4 per cent,” said Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
FPI activity in Indian markets
FPIs were net sellers in August, September and October on a sharp spike in US bond yields amid ongoing geopolitical tensions in the Middle East. FPIs were net buyers till November 15, but reversed the selling trend and invested on November 15 and 16. During August, September October and till November 15, FPIs cumulatively sold stocks for ₹83,422 crore through the exchanges.
FPI inflows into Indian equities during November stood at ₹9,001 crorecompared to over ₹39,000 crore worth of shares sold in September and October together, according to NSDL data. Taking into account debt, hybrid, debt-VRR, and equities, FPI inflows were at ₹24,546 crore during the month.
Why did FPI reverse selling streak by end of November?
Among global cues, the US Fed’s December policy decision has led to an increased inflow in Indian equities. The Federal Open Market Committee (FOMC) meeting left the benchmark interest rates unchanged at 5.25 per cent – 5.50 per cent for the third straight meetingin line with Street estimates.
Among domestic cues, the Indian economy grew 7.6 per cent during the July-September quarter for fiscal 2023-24 (Q2FY24), remaining the fastest-growing major economy in the world, according to the gross domestic product (GDP) data released by the statistics ministry.
Also, the BJP winning by a majority of votes in the the hindi heartland – Madhya Pradesh, Rajasthan, and Chhattisgarh in the state assembly elections on December 13, instilled a sense of political stability ahead of General Elections 2024. Market analysts say that a stable political environment could boost investor confidence and drive the market higher.
‘’The indication of political stability after the 2024 General elections, strong growth momentum in the Indian economy, inflation cooling off, steady decline in US bond yields and the correction in Brent crude have turned the situation in India’s favour,” said Dr. V K Vijayakumar.
FPI inflow likely to continue; Here’s why
Going forward, FPI buying is likely to sustain, according to analysts. FPIs have turned buyers in leading banks where they have been sellers. Large caps in segments like IT, telecom, automobiles and capital goods are also witnessing buying. Moreover, the US Fed’s dovish stance and rate cuts beginning from March 2024 will also likely sustain FPI interest in Indian markets.
‘’India is one of the top investment destinations of FPIs. There is a near consensus now in the global investing community that India has the best prospects among the emerging economies for sustained growth for many years to come. This growth has the potential to create phenomenal wealth through the stock market. FPIs are investing to benefit from this potential wealth creation,” said Geojit’s Dr. V K Vijayakumar.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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