Foreign Investors Renew Faith in Indian Equities with INR 17,425 Crore Boost

This past week saw fresh enthusiasm from foreign portfolio investors for Indian equities, as they pumped in a fresh INR 17,425 crore between April 21 and April 25. This was much higher than the nearly INR 8,500 crore they had infused in the previous week, which was cut short due to a holiday. What capped off this FPI euphoria last week was a strong indication from the US Federal Reserve that detrimental rate hikes were off the table for the time being. A stable US dollar coupled with easing international trade tensions has made investors much more amenable to the risk associated with emerging markets like India.

Domestic Strength Adds to the Momentum

The economic landscape of India has played a very critical role in the attraction of foreign funds. The analysts indicate that the solid growth prospects of India, together with a notable softening in the temper of inflation, and the early projections of an above-normal monsoon, are all terrific confidence boosters. And of course, if you aggregate all of that, it positions India as a much safer and far more promising investment destination compared to a number of global peer countries. And so, this becomes a very potent narrative for foreign investor attraction to India.

Early Month Outflows Still Weigh on Sentiment

Yet the overall picture for April is not so rosy. From depository data, we know that FPIs have pulled out ₹5,678 crore from Indian equities in the month leading up to April 26. This was not just a one-off occurrence occurring on a few specific days; the selling was largely consistent from start to late April.

Day-to-day selling was so much in excess of buying that we saw domestic equity benchmarks drop consistently on most trading days during that stretch. FPIs could not have pulled out that much money with just a few days of strong selling; this was a prolonged act of selling that affected multiple days and multiple businesses. Overall, domestic equity benchmarks dropped by a handful of percentage points during that span.

Investment strategists say that two key shifts have happened to bring foreign investment back into Indian markets. One is a softening US dollar, which has come down from a high of 111 in January to about 99 now. The other is the expectation that economic growth in the US will slow down and consequently impact corporate earnings there, whereas India is looking very solid with a growth above 6%. If these two trends hold, foreign investment will continue to trickle into the Indian market and sustain the run that the market is on.