Foreign Portfolio Investors (FPIs) have taken a bullish turn on the Indian stock market, injecting a substantial amount of funds, especially during the latter half of June. This shift comes after two consecutive months of net selling, with FPIs emerging as net buyers of domestic equities last month. The positive sentiment was largely driven by expectations of policy continuity due to political stability and strong macroeconomic conditions.
In June, FPIs net bought Indian equities worth ₹26,565 crore, making them net positive for 2024, according to data from the National Securities Depository Limited (NSDL). Interestingly, the majority of these inflows occurred in the second half of the month. During the first fifteen days of June, FPIs were net sellers, but their stance shifted dramatically in the latter half.
The financial services and telecommunications sectors were the main beneficiaries of this renewed interest. Nearly 65% of the total FPI inflows for the month were concentrated in these two sectors. FPIs poured ₹8,162 crore into the financial services sector during the second half of June, bringing the total inflows for the sector to ₹9,170 crore for the month. This was a stark contrast to May, where the sector saw net outflows of ₹8,583 crore.
The telecommunications sector also saw significant inflows, with ₹6,208 crore coming in between June 16 and June 30. This brought the total inflows into the sector for June to ₹7,944 crore, a substantial increase from the ₹1,106 crore in May. Additionally, the consumer services sector attracted ₹4,704 crore in June, compared to ₹2,759 crore in the previous month.
The government’s continuity following the election results guarantees ongoing reforms. This has led to an improved GDP growth forecast, attracting FPI buying. However, the FPI buying has been focused on a few specific stocks rather than being widespread across the market or sectors. This is because Indian equities are still considered overvalued by FPIs.
Vipul Bhowar, Director of Listed Investments at Waterfield Advisors
Bhowar expects FPIs to continue making selective investments in specific sectors and stocks instead of broad-based buying across the market.
There was also a notable shift in FPI flows in the Information Technology (IT) and Oil, Gas & Consumable Fuels sectors in the latter half of June. Overseas investors purchased IT sector shares worth ₹1,578 crore between June 16 and June 30, after selling ₹2,559 crore worth of shares in the first half of the month. Consequently, the IT sector experienced net FPI outflows of ₹981 crore in June, compared to net outflows of ₹5,802 crore in May.
Similarly, the Oil, Gas & Consumable Fuels sector saw FPI inflows of ₹1,048 crore between June 16 and June 30, following outflows of ₹3,683 crore in the first half of the month, according to NSDL data. Other sectors also witnessed notable FPI activity. The Automobile and Auto Components sector attracted inflows of ₹1,739 crore, the Capital Goods sector saw inflows of ₹2,792 crore, and the Chemicals sector recorded inflows of ₹1,960 crore in June. Conversely, the Power sector continued to see outflows, with total outflows for the month amounting to ₹2,498 crore.
Looking ahead, attention will gradually shift towards the budget and Q1FY25 earnings, which could determine the sustainability of FPI flows. The primary goal of including the bond index is to attract foreign investment into the Indian debt market rather than the equity market. As foreign investors become more familiar with the Indian fixed-income market, they may start to explore other investment opportunities, opening up new avenues for growth and diversification.
While India is expected to remain a preferred market for FPI flows, Vipul Bhowar believes that actual inflows may not be the highest among emerging markets due to intermittent volatility and shifting global investor sentiments. However, the long-term outlook remains positive, providing reassurance about the stability of FPI flows in India. Investors should stay vigilant and informed as the market continues to evolve, balancing optimism with caution in this dynamic environment.
