Indian equity markets see FPIs’ buying interest, trim net outflows

Foreign Portfolio Investors (FPIs) halted their equity selling spree, becoming net buyers in the cash market this past week as equity markets stabilized post-poll volatility and rallied to new all-time highs, driven by expected policy continuity and an upgraded GDP growth forecast from the RBI.

The buying interest this past week helped trim the net outflows of FPIs for this month through June 14 at ₹ 3,064 crore, much lower than the net sold level of ₹14,794 crore in the first week ended June 7, depositories data showed.

FPIs had net sold equities worth ₹25,586 crore in May and ₹8,671 crore in April 2024. So far this calendar year, the aggregate net selling of equities stood at ₹26,428 crore.

After panic-selling ₹12,436 crore worth of equities in a single day on June 4, contributing to the market crash, FPIs have changed course with the new Modi-led NDA government back in office, showing increased buying interest this past week, market experts said.

Also, the return of market stability is reflected by the sharp drop in the fear gauge VIX from 27 on June 4th to 12.82 on June 14, according to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

“The resilience of the market and eagerness of retail investors to buy every dip in the market will force FPIs to reduce their selling which was sustained in May. However, if the market continues to rally from here, FPIs may again turn sellers in India and buyers in other markets like Hong Kong which are very cheap compared to India”, Vijayakumar added.

SELLING FATIGUE?

Jitendra Gohil, Chief Investment Strategist, Kotak Alternate Asset Managers said, “As the election related uncertainty is over and volatility gauge the VIX index abates, we expect some stability in FPI flows”.

After three consecutive months of FPI outflows, including month to date in June, it is possible that the selling fatigue may emerge, he said.

India’s macro picture remains extremely resilient and the growth has been surprising on the upside, Gohil said.

“We expect this may lead to minor upgrades to earnings in the coming quaters, which may help to allay valuation concerns a bit. We expect the upcoming budget to focus on balanced economic growth without impacting fiscal consolidation path, helping broadbased economic recovery. Good monsoon and falling inflation in India is another key monitorable”, Gohil added.

NEW CONFIDENCE 

Manoj Purohit, Partner and leader of FS Tax, Tax and Regulatory Services at BDO India, said, “With the recent development and stability, FPIs’ confidence that India will continue the growth momentum has instilled a positive framework, and FPIs will return to India with numbers in green.”

There are high expectations about the upcoming Budget in July and it is expected to come with big announcements that will lay the roadmap for India’s economy to reach $5 trillion in the next three years, he said.

Sunil Damania, Chief Investment Officer, MojoPMS, said “We do not anticipate aggressive selling from FPIs; however, we should not expect strong inflows for the rest of the year. The primary concern for FPIs remains the high market valuations, likely to result in muted inflows for the full year”.

FPIs are waiting to see what the budget would hold for the economy, he added.

There is uncertainty surrounding the upcoming budget and should the NDA government adopt a populist approach, it could impede economic reforms, Damania added.

The continuous inflow of retail money has effectively counterbalanced the outflow of FPI funds, contributing to the buoyancy of the Indian market, Damania added.

“The power of retail money is here to stay. That means FPIs inflow or outflows are of little significance for the market”, he said.

FPIs had injected over ₹2 lakh crore in the previous fiscal year. Historical trends suggest that consecutive years of record inflows are uncommon, Damania added.