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Indian equities witnessed a substantial inflow of Rs 57,359 crore from foreign investors in September, marking the highest influx in nine months. This surge was primarily attributed to the rate cut by the US Federal Reserve. As a result of this infusion, foreign portfolio investors’ (FPIs) investment in equities has exceeded Rs 1 lakh crore in 2024, according to data from the depositories.
Experts anticipate that FPI inflows will continue to remain strong, supported by global interest rate easing and India’s robust fundamentals.
However, the decisions made by the RBI, especially regarding inflation management and liquidity, will play a crucial role in maintaining this momentum, as said by Robin Arya, smallcase manager and founder & CEO of research analyst firm GoalFi.
The data reveals that FPIs made a net investment of Rs 57,359 crore in equities until September 27, with one trading session remaining in the month. This marked the highest net inflow since December 2023, when FPIs had invested Rs 66,135 crore in equities.
FPIs have been consistently buying equities since June, following a withdrawal of Rs 34,252 crore in April-May. Throughout 2024, FPIs have been net buyers, with the exception of January, April, and May.
Various factors have contributed to the recent increase in FPI inflow into Indian equity markets. These include the initiation of the interest rate cut cycle by the US Fed, increased India weightage in global indices, better growth prospects, and a series of large IPOs, according to Himanshu Srivastava, associate director- manager research, Morningstar Investment Research India.
The 50 basis points rate cut by the US Fed on September 18 enhanced liquidity in the Indian markets, as the Indian rupee benefited from currency fluctuations. This interest rate differential is expected to attract more FPI inflows into India, as said by Manoj Purohit, partner and leader, FS tax, tax and regulatory services, BDO India.
Bharat Gala, COO of equity broking- Ventura Securities, noted that “With quite a few mainboard IPOs with healthy valuations listing on the stock market, foreign money has been flowing in for the new opportunities.”
In terms of FPI inflows, the Hong Kong market emerged as the top performer in September, with the Hang Seng index rising 14 per cent. China’s monetary and fiscal stimulus is expected to boost its economy, benefiting Chinese stocks listed in Hong Kong.
VK Vijayakumar, chief investment strategist, Geojit Financial Services, suggested that if the Hang Seng continues to outperform, more funds may flow into the still undervalued market.
In the debt markets, FPIs infused Rs 8,543 crore through the Voluntary Retention Route (VRR) and Rs 22,023 crore via the Fully Accessible Route (FRR) in September. With US bond yields declining, Indian government securities under the FRR have become particularly attractive to foreign investors, offering higher yields and liquidity, according to GoalFi’s Arya.
He added that the RBI’s supportive stance on debt markets, along with its focus on maintaining a stable yield environment, has encouraged sustained foreign participation through both VRR and FRR routes.