Foreign investors have pumped in close to ₹5,600 crore into the domestic equity markets in this month so far on expected growth in consumer spending in the festive season and better macro fundamentals compared to other emerging markets.
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This comes following a net investment of staggering ₹51,200 crore in August and nearly ₹5,000 crore in July, data with depositories showed.
There is a clear trend reversal in FPI (Foreign Portfolio Investment) flows from July onwards since when overseas investors turned buyers in India after nine straight months of massive net outflows, which started in October last year.
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Between October 2021 and June 2022, they sold a massive ₹2.46 lakh crore in the India equity markets.
V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said the trend of FPI flows into India is likely to continue. However, if U.S. bond yields continue to rise and the dollar index rises above 110, inflows may be impacted.
"I feel FPIs will continue buying Indian equities irrespective of the US Fed outcome," Jay Prakash Gupta, founder, Dhan, said.
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According to data with depositories, FPIs pumped a net amount of ₹5,593 crore in Indian equities during September 1-9 .
"FPIs are buying in India because India has the best growth and earnings story among large economies in the world. U.S., Euro zone and China are slowing down. India is the bright spot," Mr. Vijayakumar said.
Shrikant Chouhan, Head - Equity Research (Retail), Kotak Securities, said the Indian markets were buoyed by falling prices and a decline in domestic bond yields.
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"With falling crude oil prices, expected growth in consumer spending in coming festive season, better macro fundamentals compared to other emerging markets will definitely provide the tailwind for India," Mr. Gupta said.
In addition, exodus of investments from Russia is finding an alternative in India and funds are looking at diversifying investments away from China are the factors which have prompted resumption of FPI inflows in Indian equities, Hitesh Jain, Lead Analyst - Institutional Equities, Yes Securities, said.
Foreign investors will be eyeing Federal Open Market Committee (FOMC) meeting outcome due on September 21 and Fed is likely to increase interest rates by 75 basis points.
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U.S. inflation slowed down from a 40-year high in June to 8.5% in July on lower gasoline prices. In India, the consumer price index-based retail inflation marginally eased to 6.71% in July as against 7.01% recorded in June due to fall of food prices.
Himanshu Srivastava, Associate Director - Manager Research, Morningstar India, said FPIs' stance and outlook towards India started to change mid-July expecting that global central banks, particularly US Fed, may go slow on rate hikes as the inflation starts to cool off.
Also, Indian equities went through a correction phase making them relatively attractive on valuations.
FPIs used this opportunity to hand-picked high-quality companies and invest in them. They are now buying stocks of financials, healthcare, FMCG and telecom.
According to Yes Securities' Jain, FPIs are pouring money in domestic facing sectors like banks and consumption stocks which are immune to global shocks, and traction is apparent in terms of India's credit growth and consumer spending.
In addition, FPIs infused a net amount of ₹158 crore in the debt market during the month under review.
Apart from India, other emerging markets, including South Korea, Taiwan, Indonesia, Thailand and Philippines, too witnessed inflows during the period under review.