The first three months of fiscal 2024 witnessed a spurt in inflows from foreign portfolio investors (FPIs), taking the domestic equity market to new peaks amid the country’s strong macroeconomic fundamentals and improvement in corporate performance.
In the April-June quarter, FPIs pumped in Rs 1.02 lakh crore ($12.5 billion) into equities. As much as Rs 14,803 crore ($1.80 billion) FPI inflows into equities came on June 30 when the Sensex and Nifty closed at all-time highs. They remained consistent buyers, with average daily inflows of around Rs 1,100 crore in the first quarter, according to National Securities Depository Ltd (NSDL) data.
In June, foreign capital flows into equities were Rs 47,148 crore, the highest since August 2022 when inflows stood at Rs 51,204 crore.
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Buoyed by the FPI support, the BSE Sensex surged 803 points, or 1.26 per cent, to close at a new all-time high of 64,718.56 on June 30. The broader Nifty gained 216.95 points, or 1.14 per cent, to a fresh peak of 19,189.05. During the previous week, the Sensex rose by over 1,700 points.
FPIs have been bullish on Indian equities on the expectation that the Reserve Bank of India (RBI) has come to the end of its rate hike cycle. Retail inflation eased to 4.25 per cent in May.
“India is the best-performing economy compared to the other economies. The corporate sector also showed a turnaround in the fourth quarter. These are the factors because of which we have seen more FPI interest in India,” said Madan Sabnavis, Chief Economist, Bank of Baroda (BoB).
Renewed interest from FPIs helped Sensex surge by around 10 per cent in the first quarter. Higher fund flows also resulted in a stable rupee during the quarter.
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The rupee moved in a narrow range of 81.68 to 82.90 against the dollar in the April-June period. In the fourth quarter of FY23, the gross domestic product (GDP) growth was much stronger than expected at 6.1 per cent as against 4.5 per cent in the preceding quarter.
Higher Q4 growth pushed the FY23 growth estimate to 7.2 per cent. For FY24, the RBI has projected real GDP growth at 6.5 per cent, with Q1 growth at 8 per cent.
Corporate sector recorded a fairly steady performance in Q4 of FY23 driven by pent-up demand in several areas which helped to push up their turnover. The correction in commodity prices also helped to bring down input costs in the latter part of FY2023, a BoB research report had said.
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In June, the RBI left the repo rate unchanged at 6.5 per cent for the second consecutive policy after inflation continued to be in its comfort zone of 2-6 per cent. In April, retail inflation declined to 4.7 per cent from 5.7 per cent in March 2023. It further eased to 4.25 per cent in May.
So far in the calendar year 2023, FPIs have purchased Rs 76,407 crore of domestic shares. They were sellers of equities in January (Rs 28,852 crore) and February (Rs 5,294 crore). Overseas investors turned buyers of domestic shares in March.
“January and February 2023 saw massive flows to China triggered by China’s opening up after Covid and expectations of a revival in growth and earnings. The FPI strategy was ‘Sell India, Buy China’. It was based on the view that China is cheap and India is expensive. This strategy proved to be a mistake since the prospects of China deteriorated and that of India improved,” Geojit Financial Services’ Chief Investment Strategist V K Vijayakumar said, adding that FPIs have reversed their strategy to ‘Buy India, Sell China’.
Experts believe that FPIs are likely to continue their investments in domestic equities in the second quarter as corporates’ earnings are expected to remain better, leading to an improvement in valuations.
However, some market participants believe that the capital markets regulator Securities and Exchange Board of India’s (SEBI) new disclosure norms for FPIs could dent foreign inflows.
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FPIs holding more than 50 per cent of their Indian equity AUM (asset under management) in a single Indian corporate group, or FPIs that individually, or along with their investor group holding more than Rs 25,000 crore of equity AUM in the Indian markets will be required to make additional granular level disclosures regarding ownership, economic interest, and control, SEBI said on June 28.