Foreign Portfolio Investors (FPIs) have switched gears from selling to buying Indian equities, purchasing shares worth ₹11,730 crore during the week of June 10-15, according to NSDL data. This marks a significant turnaround after months of continuous selling. In April, FPIs sold equities amounting to ₹8,671 crore, followed by ₹25,586 crore in May.
Market Confidence Boost
The influx of foreign funds signals renewed confidence in the Indian market, bolstered by improving macroeconomic indicators and positive policy expectations. This confidence has further lifted already high-priced markets, injecting liquidity and potentially driving up stock prices.
The Indian stock market experienced a sharp 6% decline on June 4 due to uncertainty surrounding the 2024 Lok Sabha election results, which were unexpectedly tight. However, following confirmation of the BJP-led NDA forming the new government, the markets swiftly rebounded, recording a notable recovery of over 4% in June.
Leading up to the elections, FPIs had been selling off their holdings amidst concerns over BJP’s potential seat count compared to 2019. Global factors such as strong performances in Chinese markets, along with a hawkish stance from global central banks, also weighed on FPI sentiment towards Indian equities.
Policy Continuity Reassurance
The assurance of policy continuity under the BJP-led NDA 3.0 government played a crucial role in restoring confidence among FPIs. The recent uptick in buying activity reflects clarity on the political front, with PM Narendra Modi securing a third consecutive term and key ministers retained, reinforcing policy stability.
Despite recent recoveries and assurances of policy continuity, FPIs have remained net sellers in Indian equities in June, with total sales amounting to ₹3,064 crore. Early June alone witnessed significant outflows of ₹14,794 crore.
Market Stability
“In the aftermath of the volatile market in early June, stability has returned, evident from the sharp decline in India VIX from 27 to 12.82 by June 14. This decrease indicates market stability and a probable consolidation phase,” noted Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Throughout 2024, FPIs have sold equities worth ₹26,428 crore in total, with only February and March seeing net buying. Factors influencing future FPI activity include upcoming policy announcements and India’s attractiveness compared to other emerging markets.
Moreover, India’s demographic dividend, robust consumption potential, ongoing structural reforms, and geopolitical stability are pivotal in attracting global investors. Additionally, FPIs are increasingly favouring India’s debt market, allocating ₹5,700 crore as of mid-June, driven by India’s inclusion in the global bond index and growing confidence in its fixed-income securities.
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