After becoming net buyers last month, foreign investors have shown tremendous enthusiasm for Indian equities and have invested close to Rs 44,500 crore in August so far amid moderation in inflation in the US and a fall in the dollar index. This was much higher than the net investments of about Rs 5,000 crore made by foreign portfolio investors (FPIs) throughout July, data from the depositories showed.
FPIs became net buyers in July for the first time after nine consecutive months of massive outflows, which started in October last year. Between October 2021 to June 2022, he sold a whopping Rs 2.46 lakh crore in the Indian equity markets. FPI inflows will remain volatile in the coming months. However, with rising inflation, tightening monetary policy and concerns over Q1 earnings performance, inflows to emerging markets are likely to improve, said Shrikant Chauhan, head-equity research (retail), Kotak Securities.
VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said the near-term trend in capital inflows will be mainly influenced by the dollar movement.
According to depository data, FPIs made a net investment of Rs 44,481 crore in Indian equities during August 1-19. This is his highest investment so far in the current year. The sentiment in the stock market has increased due to continuous buying by FPIs. “The main trigger for continued buying has been a steady decline in the dollar index from above 109 in late July to nearly 105 recently. But on August 19, the dollar index climbed again and crossed 107. If it If the trend continues, capital flows may get hit,” Vijayakumar said.
Chouhan of Kotak Securities attributed the positive inflows to rising expectations that the global economy may avoid a major fall amid moderating inflation levels in the US. US inflation on lower gasoline prices eased from a 40-year high in June to 8.5 per cent in July, indicating that the US Federal Reserve may be less aggressive in raising interest rates.
Himanshu Srivastava, Associate Director- Manager Research, Morningstar India, said the net inflows were driven by expectation that the slowdown is not expected to hit the US market or its impact will be less. He said inflation has remained elevated, but has risen lower than expected, which has improved the sentiment. These positive sentiments have prompted foreign investors to take some risk and invest in Indian equity markets. On the domestic front, the recovery in the Indian equity markets provided a good buying opportunity to the investors. In addition, FPIs infused a net amount of Rs 1,673 crore into the debt market during the month under review.
“In emerging markets, India This year and next year is likely to do better with best GDP growth rate. Therefore, India is likely to attract more capital inflows than other emerging markets. However, the elevated valuations in India are a matter of concern,” Vijayakumar said. Apart from India, flows were positive in Indonesia, South Korea and Thailand, while they were negative for the Philippines and Taiwan during the period under review.
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