Foreign Portfolio Investors Slow Buying Spree Ahead of US Federal Reserve Meeting
Foreign portfolio investors (FPIs) in India have shown a steady buying spree in July, with a net infusion of Rs 45,365 crore into the Indian equity markets. This influx is attributed to stable macroeconomic fundamentals and consistent earnings growth. However, it appears that the momentum of buying has slowed down, as FPIs turned sellers during the two trading days leading up to the US Federal Reserve meeting on Wednesday.
The US Federal Reserve has indicated the possibility of more interest rate hikes in the future and ruled out rate cuts in the near term. As a result, foreign investors have re-evaluated their investment decisions, considering the potential impact of rate hikes on global liquidity. Himanshu Srivastava, Associate Director – Manager Research at Morningstar India, stated that this factor influenced FPIs to turn towards selling rather than buying.
Despite the recent slowdown in buying, FPIs have been continuously purchasing Indian equities since March, injecting a total of Rs 45,365 crore this month alone. This figure includes investments made through bulk deals, primary markets, and stock exchanges. Notably, this marks the third consecutive month where net flows have exceeded the Rs 40,000 crore mark. In June, FPIs infused Rs 47,148 crore, while in May, the figure stood at Rs 43,838 crore.
Over the last three months (May to July), FPIs have invested a significant amount of Rs 1.36 lakh crore in the Indian equity markets. Prior to March, overseas investors withdrew a collective sum of Rs 34,626 crore during January and February.
V K Vijayakumar, Chief of Investment Strategy at Geojit Financial Services, highlights that external factors such as the dollar index, US bond yields, and global market trends significantly influence FPIs’ buy/sell strategy, along with domestic fundamentals. This explains the recent trend of FPIs buying financial stocks in the past three months, which they had sold during the initial three months of 2023.
The stability of the Indian economy remains a positive aspect that attracts FPIs as a preferred investment destination. Himanshu Srivastava of Morningstar India suggests that as long as India’s economic stability persists, FPIs will continue to prioritize the country for investment.
Apart from equities, overseas investors have also injected Rs 3,340 crore into the Indian debt market during the period under review. The total inflow in the equity market has reached Rs 1.22 lakh crore, while the inflow for debt stands at over Rs 20,000 crore so far this year, as per data from the depositories.
In terms of sectors, financials, automobiles, capital goods, real estate, and FMCG continue to attract the majority of FPI investments.
In summary, while FPIs have shown a gradual slowdown in their buying spree ahead of the US Federal Reserve meeting, their overall investment in Indian equities remains robust due to stable macroeconomic fundamentals. The external factors influencing FPI investment strategies indicate the importance of factors such as the dollar index and global market trends. The Indian economy’s stability further strengthens its appeal as a preferred investment destination.
