After nine consecutive months of continuous selling, foreign investors have become net buyers and have infused around Rs 5,000 crore in Indian equities in July on softening dollar index and good corporate earnings.
This is in sharp contrast to the net outflow of Rs 50,145 crore from the stock market seen in June.
The latest month’s reversal was the highest net outflow since March 2020, when foreign portfolio investors (FPIs) pulled out Rs 61,973 crore from equities, data from the depositories showed.
As we move forward, Hitesh Jain, Lead Analyst – Institutional Equities, Yes Securities believes FPIs to remain positive during August as worst-case scenario for rupee is over, and oil confined in a range Is.
“Furthermore, the earnings story remains strong, with strong revenue growth offsetting the contraction in profit margins,” he said.
According to depository data, FPIs invested a net Rs 4,989 crore in Indian equities in July. He was a buyer nine days a month.
Net inflows also propelled equity markets northwards.
FPIs became net buyers for the first time in July, following nine consecutive months of massive net outflows, which began in October last year.
Between October 2021 and June 2022, he made huge sales worth Rs 2.46 lakh crore in the Indian equity markets.
The turning point for net inflows in July was US Federal Reserve Chairman Jerome Powell’s statement that the US is not currently in a recession, which helped improve sentiment and risk appetite globally; Himanshu Srivastava, Associate Director – Manager Research, Morningstar India said.
Vijay Singhania, chairman, TradeSmart, said strong corporate numbers have also boosted inflows.
VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said a moderation in the dollar index and good quarterly earnings from financials have improved sentiments.
The recent correction in the Indian equity markets has also provided a good buying opportunity. Srivastava said that FPIs are taking advantage of this by choosing high quality companies.
However, during the month under review, FPIs pulled out a net amount of Rs 2,056 crore from the debt market.
According to Srivastava, this reversal in net outflows cannot be treated as a change in trend or it cannot be assumed that FPIs have made a complete comeback. While this is a welcome change from foreign investors, the landscape is evolving rapidly, and clarity may take some time to emerge.
“The inflows have also been driven largely by short-term trends. So, we still have long-term money coming in to the Indian markets, which is sticky. At the same time, concerns about the US going into a recession remain. No. An even aggressive US Fed rate hike, or expectation of the same, could further increase capital outflows into emerging markets such as India,” he said.