In June, foreign portfolio investors (FPIs) injected Rs 11,730 crore into Indian equities, a marked recovery from the preceding week’s net outflow of Rs 14,794 crore. This positive turn is attributed to favorable domestic and global market conditions, signaling increased investor confidence.
Market Stability and Investor Confidence
The Indian market has witnessed a return to stability, as indicated by the significant drop in the India VIX, a measure of market volatility. From a peak of 27 on June 4, the index fell to 12.82 by June 14. This decline suggests a consolidation phase and reduced market turbulence, encouraging investors to re-engage.
Global Economic Factors
Global economic developments have also played a role in attracting FPIs. Lower-than-expected inflation rates in the United States have raised hopes for potential interest rate cuts, contributing to a decline in US Treasury yields. These factors have collectively fostered a risk-on sentiment among global investors, making emerging markets like India more attractive.
Historical FPI Trends
The recent inflows follow a period of volatility where FPIs had been net sellers in Indian equities. In May, FPIs pulled out Rs 25,586 crore due to political uncertainties and concerns over tax treaties and rising US bond yields. However, the renewed interest in June marks a reversal, indicating growing confidence in the Indian market’s resilience and potential .
Sectoral Preferences and Debt Market Investments
FPIs have not only been active in equities but have also invested over Rs 5,700 crore in the Indian debt market this month. This dual interest highlights a broader confidence in India’s economic prospects. Market experts believe that India’s inclusion in global bond indices could further bolster long-term FPI flows into the debt market.
Retail Investor Activity and Market Dynamics
The enthusiasm of retail investors, who have consistently bought during market dips, has added to the market’s resilience. This dynamic is crucial as it forces FPIs to reconsider their positions, reducing their selling pressure. However, the continuation of this trend is dependent on the market’s performance and comparative valuations with other global markets.
Future Projections and Considerations
While the recent inflows are a positive sign, the overall trend for 2024 still shows a net withdrawal of Rs 26,428 crore from equities. Despite this, the substantial investments in the debt market, amounting to Rs 59,373 crore, underscore a nuanced FPI strategy focusing on both equities and fixed-income securities.
The robust inflow of Rs 11,730 crore into Indian equities in June reflects a combination of domestic market stability, favorable global economic indicators, and strategic investment preferences by FPIs. This development is a positive indicator for the Indian economy, suggesting a potential for sustained growth and investor confidence in the coming months.
Meet Suhas Harshe, a financial advisor committed to assisting people and businesses in confidently understanding and managing the complexities of the financial world. Suhas has shared his knowledge on various topics like business, investment strategies, optimizing taxes, and promoting financial well-being through articles in InvestmentDose.com
