Why do FPIs, who invested ₹26,505 crore in Indian shares in December, turn into net purchasers three months later?

 Why do FPIs, who invested ₹26,505 crore in Indian shares in December, turn into net purchasers three months later?

Why do FPIs, who invested ₹26,505 crore in Indian shares in December, turn into net purchasers three months later?

NSDL data shows that FPIs had invested ₹26,505 crore in Indian shares. Including debt, hybrid, debt-VRR, and equity, the total inflows up to December 8th were ₹30,852 crore.

After ending their selling frenzy in November, foreign portfolio investors (FPIs) began December on a positive note, resulting in net buyers appearing in the Indian stock market. Foreign money flows into developing countries like India have risen due to the dollar's weakness, falling US Treasury yields, and rising wagers that the US Federal Reserve would raise key interest rates.

Data from the National Securities Depository Limited (NSDL) shows that foreign portfolio investors (FPIs) purchased Indian stocks for ₹26,505 crore. Including debt, hybrid, debt-VRR, and equity, the total inflows up to December 8 were ₹30,852 crore. There are ₹10,874 crore in cash market investments.

Analysts said that among other things, the MSCI EM index rebalance was the cause of the net inflows by FPIs. "As per NSDL data, total investment in India, including investment through the primary market, is Rs 26,605 crore as of December 8," said Dr. VK Vijayakumar.

FPI activity in marketplaces located in India

Due to the continued geopolitical unrest in the Middle East and the subsequent steep increase in US bond rates, FPIs were net sellers in August, September, and October. Up until November 15, FPIs were net purchasers; however, on November 15 and 16, they broke with the selling trend and made investments. FPIs sold equities worth ₹83,422 crore via exchanges in August, September, October, and November combined.

NSDL data shows that foreign portfolio investors (FPIs) bought ₹9,001 crore of Indian stocks in November, whereas they sold shares valued at more than ₹39,000 crore in September and October combined. FPI inflows for the month was ₹24,546 crore when debt, hybrid, debt-VRR, and equity were taken into consideration.

In India, FPIs saw a significant resurgence in December. FPIs were sellers of ₹368 crore in the cash market in November, despite having invested ₹9,000 crore in India. The significant purchases made in the cash market in December, according to Dr. VK Vijayakumar, chief investment strategist at Geojit Financial Services, have altered this.

What causes the FPI trend to have changed from November?

According to GDP figures issued by the Statistics Ministry, the Indian economy gained 7.6% during the July-September quarter of the financial year 2023–24 (Q2FY24), continuing to be the fastest-growing major economy globally.

Furthermore, a feeling of political stability was established ahead of the general elections of 2024 as a result of the BJP's resounding win in the Hindi heartland of Madhya Pradesh, Rajasthan, and Chhattisgarh in the state assembly elections held on December 13. According to market professionals, a politically stable atmosphere may encourage investors and strengthen the market.

The situation has swung in India's favor, according to Dr., "signs of political stability following the general elections in 2024, strong growth momentum in the Indian economy, decline in inflation, sustained decline in US bond yields, as well as improvement in Brent crude." Vijayakumar K.

US bond rates dropped dramatically to the 4 percent threshold after the most recent US Federal Reserve policy decision on November 1 as a result of Fed Chairman Jerome Powell's dovish comments. On December 13, the US Federal Reserve will reveal its next policy decision.

Powell said that "despite a rise in inflation inflation expectations remain well anchored." The market took this comment to mean that the cycle of rate hikes was coming to an end. This explains the sharp improvement in US bond rates.

FPI inflows are expected to persist; this is the reason why markets currently think that the Fed has raised interest rates and will begin lowering them gradually in 2024. The US Federal Reserve may lower interest rates by the middle of 2024 if US inflation keeps down. This might make it easier for FPI to enter emerging markets (EM). According to analysts, India.

In the future, FPI inflows are probably going to continue. FPIs used to be sellers at large banks, but now they are purchasers. Large market capitalization in industries like IT, telecom, autos, and capital goods are also showing buying. "This trend is probably going to continue," Geojit's Dr. VK Vijayakumar said.