Foreign portfolio investors (FPIs) began December on a high note, having finally reversed their selling streak in November and become net purchasers in the Indian stock market. After the US Federal Reserve announced the conclusion of its tightening cycle and heightened expectations of a rate cut in March 2024, the inflows have accelerated. This caused a drop in US bond yields and prompted foreign investment inflows into emerging countries such as India.
According to National Securities Depository Ltd (NSDL) data, FPIs purchased 42,733 crore of Indian shares, bringing the overall inflow to 51,787 crore as of December 15, including debt, hybrid, debt-VRR, and equities. According to analysts, FPIs bought a lot of stocks in the banking and IT sectors.
"A significant development in December, particularly following the state election results, is FPIs becoming buyers." This trend has accelerated since the Fed marked the end of the tightening cycle and suggested three rate decreases in 2024. This caused a drop in US bond yields, with the 10-year yield falling below 4%,'' according to Dr. V K Vijayakumar, Chief Investment Strategist of Geojit Financial Services.
Foreign portfolio investment in Indian Markets
Due to a substantial increase in US bond yields and persistent geopolitical concerns in the Middle East, FPIs were net sellers in August, September, and October. FPIs were net buyers until November 15, but then reversed course and invested on November 15 and 16. During August, September October and till November 15, FPIs cumulatively sold stocks for ₹83,422 crore through the exchanges. According to NSDL data, FPI inflows into Indian stocks totaled 9,001 crore in November, compared to over 39,000 crore in shares sold in September and October combined. FPI inflows totaled 24,546 crore for the month, including debt, hybrid, debt-VRR, and stocks.
Why had the FPI reversed its selling trend by the end of November?
Among global indications, the US Federal Reserve's December policy decision has spurred inflows into Indian shares. For the third consecutive meeting, the Federal Open Market Committee (FOMC) maintained benchmark interest rates steady at 5.25 percent - 5.50 percent, in accordance with Street expectations. Among domestic indicators, the Indian economy gained 7.6 percent during the July-September quarter of fiscal 2023-24 (Q2FY24), remaining the world's fastest-growing major economy, according to figures issued by the statistics ministry.
Furthermore, the BJP's victory in the state assembly elections on December 13 in the Hindi heartland - Madhya Pradesh, Rajasthan, and Chhattisgarh - created a feeling of political stability ahead of the General Elections 2024. According to market analysts, a stable political environment might improve investor confidence and propel the market upward. ''The hint of political stability following the 2024 General Elections, solid economic momentum in the Indian economy, inflation cooling off, sustained decrease in US bond yields, and the correction in Brent crude have tipped the scales in India's favor,'' Dr. V K Vijayakumar said.
FPI Inflows are Expected to Continue; Here's Why
Analysts believe that FPI buying will continue in the future. FPIs have become buyers in major banks when they were sellers. Large companies in sectors such as IT, telecommunications, cars, and capital goods are also seeing buying. Furthermore, the US Fed's dovish posture and rate decreases commencing in March 2024 will likely keep foreign investors interested in Indian markets.
''India is one of the top investment locations for foreign portfolio investors. The global investing community has come to the conclusion that India has the best potential among emerging economies for long-term growth. This expansion has the potential to generate enormous wealth through the stock market. FPIs are investing to capitalise on this potential wealth generation,'' said Dr. V K Vijayakumar of Geojit.
