A net buyer for FPIs in June, with equity inflows of ₹ 26,565 crore, it starts July on a positive note; Here’s why

After markets recovered in India, FPIs turned net buyers last month, with the two-month selling streak coming to an end. The buying streak of FPI was also seen to be broken by the beginning of the new fiscal 2024-25. Volatility due to Lok Sabha elections 2024 and results, outperformance in Chinese markets, and other global cues had weighed earlier upon the sentiments of foreign investors.

In Indian equities, FPIs invested ₹7,962 crore, and the net stood at ₹14,128 crore as of July 5, undertaking investments in debt, hybrid, debt-VRR, and equities. In June, FPIs invested ₹26,565 crore in Indian equities, while inflows in debt stood at ₹14,955 crore. The NSDL data pegged the total investment in June at ₹41,757 crore.

“For CY 2024, so far, FPIs have invested only ₹11,162 crore in equity. But the FPI investment in debt for the same period stands at a massive ₹74,928 crore.

The inclusion of Indian government bonds in the JP Morgan EM Govt Bond Index and the front running by investors have contributed to this divergence in equity and debt inflows,” said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

Will FPI inflows continue in July?

FPIs bought heavily in telecom and financial services in the fortnight ending June 30. They were also buyers in autos, capital goods, healthcare and IT, according to market analysts. Metals, mining and power saw some selling by them as they had seen a significant run up in the recent months.

One important characteristic of FPI flows is that the selling in India has been triggered by external factors, be it rising bond yields in the US or low valuations in other emerging markets. When that situation changes, they become buyers in India.

”In fact in recent days they have been buying the same segments and stocks at a price higher than the price at which they sold. This experience tells us that FPI selling in India is an opportunity for domestic investors,” said Dr. V K Vijayakumar of Geojits.

Market analysts are of the view that it is a time when the investor fraternity has again come into action to look at India as a more preferred jurisdiction compared with other markets. They further add that the FPIs in India will keep on increasing under a stable government regime and in an environment backed by inflation control, fiscal prudence, and far-sighted vision for building India as the center for global capital markets.

We believe India still remains an attractive investment destination on the back of a healthy economic and earnings growth momentum, and it is tough for FPIs to ignore its markets for too long.

That, in the event of a risk-on environment at the global level, set off by increasing expectations of rate cuts, it would take for increasing the flows to EM equities, with India expected to emerge as one of the bigger beneficiaries out of the flows,” said Milind Muchhala, Executive Director, Julius Baer India.

FPI activity in Indian markets

In May 2024, offloading by FPIs was ₹25,586 crore in Indian equities. On the other hand, debt inflows had remained at ₹8,761 crore. Uncertainty over the outcome of the Lok Sabha elections 2024, high US bond yields, high Indian market valuations, and outperformance of Chinese stocks weighed on sentiments.

FPIs sold ₹8,671 crore of Indian equities in April and ₹10,949 crore in debt markets due to high US bond yields. However, they invested ₹35,098 crore in Indian equities during March 2024—the highest inflows seen in the first three months of 2024. Though the FPI outflow had started declining in February 2024, they turned net buyers towards the end of the month despite the high US bond yields.

The inflow into equities stood at ₹1,539 crore in February 2024, and investment in the debt market rose to ₹22,419 crore during the month on top of the ₹19,836 crore it bought in January.

Inclusion of government bonds into JPMorgan and Bloomberg debt indices had spurred foreign fund inflows into debt markets.

FPIs turned massive sellers in January 2024, snapping their buying streak as investments saw a sharp uptick in December 2023 after they reversed their three-month selling streak in November 2023.

However, in December, strong global cues did intensify the inflows after the US Federal Reserve signaled that its tightening cycle was nearing an end and expectations of a rate cut in March 2024 strengthened.

This crashed US bond yields and resulted in the triggering of foreign fund inflows into emerging markets like India.

FPIs purchased about ₹1.71 lakh crore in equities for the whole calendar year 2023, and total inflows stand at ₹2.37 lakh crore if one considers debt, hybrid, debt-VRR, and equities, according to NSDL data. Net investment by FPIs stood at ₹68,663 crore in the Indian debt market for the entire year 2023.