Foreign investors make strong comeback in Indian equities with Rs 12,170 crore inflow in June

In a robust recovery following the general election results, foreign investors injected Rs 12,170 crore into Indian equities so far in June, driven by expectations of continued policy reforms and sustained economic growth. This inflow comes after a net withdrawal of Rs 25,586 crore in May due to election-related uncertainties and more than Rs 8,700 crore in April amid concerns over changes in India's tax treaty with Mauritius and rising US bond yields.

Despite the recent positive trend, the total outflow for 2024 still stands at Rs 11,194 crore as of June 21, according to data from depositories. Sunil Damania, Chief Investment Officer at MojoPMS, noted that foreign portfolio investors (FPIs) are cautious due to the high valuations of Indian equities, which may constrain future inflows.

FPIs had been largely on the sidelines awaiting the election outcomes. Excluding March, which saw a significant inflow of Rs 35,000 crore, they have consistently pulled out funds from Indian markets throughout 2024. The general election results, which delivered a weaker-than-expected mandate, nevertheless reassured investors by ensuring government stability and policy continuity.

"Despite the surprising election results, markets celebrated the formation of a stable government, bolstering confidence," said Kislay Upadhyay, smallcase Manager and founder of FidelFolio. The positive business sentiment and policy continuity have further added to market confidence.

Damania identified three main reasons for the recent positive inflow: the assurance of ongoing reforms, a slowdown in the Chinese economy marked by a 12 percent decline in copper prices over the past month, and the active participation of FPIs in certain block deals. However, he pointed out that these inflows are concentrated in a few select stocks rather than being widespread across various sectors.

The anticipation of a pro-growth budget has also buoyed investor sentiment, according to Himanshu Srivastava, Associate Director - Manager Research at Morningstar Investment Research India. Early FPI activity in June indicates buying in financial services, telecom, and realty sectors, while selling in FMCG, IT, metals, and oil and gas sectors, noted VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

In addition to equities, FPIs have invested Rs 10,575 crore in the debt market during the review period. Foreign investors have consistently shown interest in Indian debt throughout 2024, with the exception of April, contributing a total investment of Rs 64,244 crore. India's inclusion in the global debt index has positively impacted these inflows.

"Irrespective of short-term changes in flows, we believe India remains an attractive long-term investment destination for global investors," said Nimesh Chandan, CIO of Bajaj Finserv Asset Management Ltd.

(With inputs from agencies.)

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