FPIs end two-month selling streak, invest ₹12,170cr in Indian equities
What's the story
Foreign portfolio investors (FPIs) have ended their two-month selling streak in Indian equities by investing ₹12,170 crore this month. This shift comes as stability returns to the Indian markets, marked by a decrease in the 'VIX' volatility index. The selling streak had started with the beginning of fiscal 2024-25 (FY25), influenced by factors such as Lok Sabha elections 2024 results and outperformance in Chinese markets among other global cues.
Market strategy
FPIs's investment strategy: High valuations sell, reasonable valuations buy
According to data from the National Securities Depository Ltd (NSDL), the net investment as of June 21 stands at ₹25,085 crore, including debt, hybrid, debt-VRR, and equities. The total debt inflows amount to ₹10,575 crore until the third week of June. Dr. V K Vijayakumar from Geojit Financial Services noted that FPIs are "selling where valuations are high and buying where valuations are reasonable."
Market reaction
FPIs react to election results, inject ₹23,786 crore post-elections
The first week of June witnessed significant volatility in FPI flows due to exit polls and actual election results. FPIs bought equity for ₹6,521 crore on June 3 in response to exit polls. However, when the actual results fell short of the exit polls' predictions, the market crashed over 6% on June 4 and FPIs sold stocks worth ₹12,259 crore. Since June 10, following the election results, they have injected ₹23,786 crore into the market.
Investment focus
FPI inflows concentrated in select stocks, high valuations a constraint
Sunil Damania, Chief Investment Officer at MojoPMS, identified three primary reasons for the positive inflow: continuity of government assuring ongoing reforms; deceleration of the Chinese economy; and certain block deals in the market have been eagerly taken up by FPIs. However, these FPI inflows are concentrated in select stocks rather than being widespread across the market or sectors. Damania stated, "We believe that FPI inflows will remain constrained due to the high valuations currently commanded by the Indian equity market."
Market impact
FPI outflows no longer significant market events
According to Damania, FPIs are no longer the main influencers as robust domestic investors mitigate the impact of FPI outflows. Consequently, he stated that "FPI outflows are no longer significant market events." The long-term outlook for FPI flows into Indian debt is positive due to India's inclusion in global bond indices. However, near-term flows are being impacted by global macroeconomic uncertainty and volatility. Analysts predict a reversal of this trend once the interest rate outlook becomes clearer.