Foreign portfolio investors return to Indian equity markets

Business Sunday 16/June/2024 06:33 AM
Foreign portfolio investors return to Indian equity markets

New Delhi: Foreign portfolio investors (FPIs) returned to the Indian equity markets, with a net investment of Rs 2,743 crore on Friday. Despite this positive development, the overall net investment by FPIs remains negative.

According to the latest data from the National Securities Depository Limited (NSDL), net investments for June are still in the red, standing at Rs 3,064 crore. This negative trend follows a period of significant sell-off by foreign investors, which occurred in the wake of the announcement of election results.

However, confidence seems to be returning to the Indian market with the Modi 3.0 government now in charge.

The first week of June was marked by extreme volatility in FPI flows, largely influenced by the exit polls and the actual election results. On June 3rd, buoyed by the optimistic exit poll results, FPIs made substantial equity purchases of Rs 6,521 crore.

However, the actual election results did not meet the expectations set by the exit polls, leading to a sharp market downturn on June 4th. In response, FPIs reacted by offloading stocks worth Rs 12,259 crore.

"After the roller coaster ride in the market in the first week of June, stability has returned to the market as indicated by the sharp fall in India VIX from 27 on June 4th to 12.82 on 14th June. This fall in India VIX indicates the return of stability and a likely consolidation phase in the market" said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

He added, "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."

The resilience of the Indian market and the enthusiasm of retail investors to capitalize on market dips have put pressure on FPIs to slow down their selling, which was prevalent throughout May.

Indian markets are showing signs of recovery and stability, supported by retail investor activity and a favourable political climate under the new government.

In May, FPIs sold equities worth Rs 25,586 crore as per NSDL data, indicating a pattern of sustained and excessive selling in the cash market.

For the year 2024 so far, FPIs have divested equity worth Rs 26,428 crore. A notable trend in FPI activity is the considerable selling through exchanges while simultaneously buying through the primary market route.

However, the behaviour of FPIs will be a critical factor to watch in the coming weeks, as their investment strategies will significantly impact market dynamics.