Foreign investors pour over ₹76,000cr into Indian equities this month
What's the story
Foreign portfolio investors (FPIs) have invested a net ₹76,188.75 crore into Indian equities so far in November. The inflow was observed between November 3 and November 13 and marks a major turnaround after two months of heavy selling. In September and October, FPIs had pulled out a net ₹35,861 crore and ₹34,843 crore, respectively from Indian equities.
Market dynamics
Shift in global market sentiment
The recent surge in FPI investment can be attributed to a shift in global market sentiment.
The sell-off of AI-related stocks in the US and other Asian markets has made India, a less AI-heavy market, more attractive to foreign investors.
Motilal Oswal Financial Services noted that Indian equities bounced back from their lows even as most global markets faced a sell-off due to concerns over interest rate hikes and doubts about whether investments in AI infrastructure had outpaced potential returns.
Investment factors
Improving domestic corporate earnings
Improving domestic corporate earnings and more reasonable valuations of large-cap stocks have further enhanced India's attractiveness to FPIs.
This comes after a long period of underperformance against other emerging-market peers.
The potential reduction in the tax burden on foreign investors could also be a factor in improving sentiment.
Reports suggest that SEBI has proposed removing the 12.5% long-term capital gains tax on equity investments by FPIs from its pre-Budget recommendations to the government.
Tax implications
SEBI's proposal to remove long-term capital gains tax
The SEBI's proposal is non-binding and the final decision lies with the government.
However, it has raised hopes that India could make its equity market more attractive for foreign investors by reducing tax and transaction-cost burdens.
The sustainability of this reversal will depend on factors such as earnings growth, market valuations, currency movements, and global risk appetite.