Ahead of Modi 3.0 Government’s full budget on July 23, Foreign Portfolio Investors (FPI) continued to show strong buying interest in Indian equities with net inflows of ₹7,962 crore (near $1 billion) in the first week of July 2024, data with depositories showed. 

This was in addition to June 2024 inflows, when FPIs—after remaining net sellers in April and May— had made net investments of ₹26,565 crore in the Indian equities market. 

For the first time this fiscal, FPI’s net investments turned positive at ₹269 crore (April 1 to July 5), latest data showed. 

In April and May 2024, FPIs had net sold equities to the tune of ₹8,671 crore and ₹25,586 crore. 

Indian equity markets have been on a roll since the June 4 general elections verdict day crash. Between June 4 and July 5, the market has rebounded to post handsome gains across all key indices. 

While the Nifty 50 benchmark was up 11 per cent in one month since the poll verdict, Nifty Bank was up 12 per cent. The Nifty Mid-cap index has surged 16 per cent and the Nifty Smallcap index is up 20 per cent. 

So far this calendar year, FPI net investment inflows stood at ₹11,162 crore in equity and a massive ₹74,928 crore in debt markets (largely front-loading ahead of India’s government bond inclusion in JP Morgan’s global bond indices from June 28).

V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said, A significant feature of FPI flows is that their selling in India has been triggered by external factors like rising bond yields in the US and low valuations in other emerging markets. When that situation changes they again become buyers in India. In fact in recent days they have been buying the same segments and stocks at a higher price than the price at which they sold. This experience tells us that FPI selling in India is an opportunity for domestic investors.”

In the fortnight ending June 30th, FPIs bought heavily in telecom and financial services. They also bought autos, capital goods, healthcare, and IT. Selling was seen in metals, mining and power, which had run up too fast in recent months, he added. 

Milind Muchhala, Executive Director of Julius Baer India, said “FPI activity has remained muted in the past three years, to some extent impacted by the weak EM flows amid a strengthening USD, and also due to the significant outperformance/premium valuations of India vs. EM peers (such as China) of late. Also, some funds were probably waiting on the sidelines for the election event to be over. 

However, we believe India remains an attractive investment destination amid a healthy economic and earnings growth momentum, and the FPIs cannot afford to ignore the markets for too long”.

Muchhala added that  a global risk-on environment, triggered by increasing expectations of rate cuts, it could lead to increasing flows to EM equities, with India expected to emerge as one of the bigger beneficiaries of the flows.