After 9 months, FPIs return to Indian equities

New Delhi: After nine consecutive months of relentless selling, foreign institutional investors (FIIs) have turned net buyers and invested nearly Rs 5,000 crore in Indian equities in July on softening dollar index and good corporate earnings.

This is in sharp contrast to a net withdrawal of Rs 50,145 crore from the stock market seen in June. This was the highest net outflow since March 2020, when foreign portfolio investors (FPIs) had pulled out Rs 61,973 crore from equities, data with depositories showed. Going forward, Hitesh Jain, Lead Analyst - Institutional Equities, Yes Securities, believes that FPI flows to remain positive during August as the worst for the rupee seems to be over, and oil seems to be confining in a range.

"Also, earnings story still remains strong where sturdy revenue growth is offsetting contraction in profit margins," he added. According to data with depositories, FPIs infused a net amount of Rs 4,989 crore in Indian equities in July. They were buyers for nine days in the month. The net inflow also propelled the equity markets northwards. FPIs turned net buyers for the first time in July after nine straight months of massive net outflows, which started in October last year. Between October 2021 till June 2022, they sold a mammoth Rs 2.46 lakh crore in the Indian equity markets.

"The turning point for the net flows in July was US Federal Reserve Chairman Jerome Powell's statement that currently the US is not in a recession helped improve sentiments and risk appetite globally," said Himanshu Srivastava, associate director (manager research), Morningstar India.

Vijay Singhania, chairman at TradeSmart, said strong corporate numbers also boosted the inflow.

"Also, softening of the dollar index and good quarterly earnings from financials have helped in improving the sentiments," said VK Vijayakumar, cheif investment strategist at Geojit Financial Services.

Additionally, the recent correction in the Indian equity markets has also provided a good buying opportunity, and FPIs have been taking advantage of the same by hand-picking high-quality companies, Srivastava said. However, FPIs pulled out a net amount of Rs 2,056 crore from the debt market during the month under review. According to Srivastava, this reversal in net outflows cannot be construed as a change in trend or consider that FPIs have made a complete comeback. While it is a welcome shift from foreign investors, the scenario continues to evolve at a fast pace, and it may take a while for clarity to emerge. "The flows have also been largely driven by short-term trends. So, we are still to see long-term money coming into the Indian markets, which is stickier. Plus, concerns about the US going into recession continue to persist. Any aggressive rate hike by US Fed, or expectation of the same, could further exacerbate capital outflows in emerging markets such as India," he added.