FPIs have invested Rs 37,316 crore in Indian equities so far in May. It is owed to good macroeconomic fundamentals and moderate market valuations.
This is the most money invested by FPIs within the recent six months. Before this, they had a net acquisition of Rs 36,239 crores in shares in November 2022, according to depositories data.
Going forward, Himanshu Srivastava believes that a resolution to the US debt ceiling and excellent domestic macroeconomic data might be helpful for markets and lead to new flows of assets from overseas investors.
According to Shrey Jain, the outlook for FPI flows has greatly improved, owing mostly to the conclusion of the quantitative tightening phase in the US and India’s current outperformance in comparison to global stocks.
According to depositories, FPIs bought the amount in Indian equities between May 2 and May 26. GQG Partners, based in the United States, made a large investment in Adani Group companies in March.
However, after adjusting for GQG’s interests in the Adani Group, the overall flow was negative. Furthermore, FPIs took out nearly Rs 34,000 crore in the initial two months of this year.
According to Srivastava, the recent net inflows are mostly driven by a robust domestic macro-outlook, fair valuations of Indian shares, and a good earnings season. All of these indicate greater growth prospects.
“Industries in the current result season contributed to a positive outlook for FPI in Indian equity markets,” said Nitasha Shankar. FPI buying has increased the NSE flagship indicator Nifty by 2.4 percent so far in May.
The rising trend is projected to continue. FPIs spent Rs 1,432 crores in the debt arena so far in May, in addition to equities. With the latest inflow, FPI net investment in Indian shares has reached Rs 22,737 crores in 2023.
FPIs serve as buyers in a variety of industries. It includes autos, capital goods, medical care, natural gas and oil, and telecommunications.
Furthermore, huge purchases were seen in financial sectors, particularly banks. Furthermore, the strengthening of the rupee versus the dollar has aided FPI purchases.
Furthermore, he continued, recent fluctuations in markets and rare corrections have lent some rationale to pricing. Aside from equities, FPIs invested Rs 68 crores in the debt market during the first two weeks of May.
In terms of industry, financials remain the preferred sector of FPIs. They also purchased capital goods like automobiles.
According to Sanctum Wealth’s Jeloka, worldwide government action appears to have offered some feeling of security to US regional banks. It led to a risk-on atmosphere following a chaotic period in March, resulting in a boost in FPIs movement in April and further growth in May.
Foreign portfolio investors’ investments in outstanding corporate bonds fell to Rs 1.04 lakh crore at the end of March 2023. It is down from Rs 1.21 lakh crore the previous year, according to the Reserve Bank of India’s annual report.
As a result, FPIs used 15.52 percent of the permitted maximum, down from 19.94 percent in the previous year. Domestic primary corporate bond issuing grew in 2022-23, while overseas bond issuing moderated.
Domestic corporate bond offerings grew to Rs 7.6 lakh crore in 2022-23. It is up from Rs 6 lakh crore in the previous fiscal year, according to the research.
For the initial time since December 2021, FPI flows have turned favorable on a TTM basis. TTM offshore flows into domestic shares are now over $7.3 billion, the highest since November 2021.
It is thanks to strong inflows over the last three months. This has contributed to one-year Nifty gains of 12%.
TTM FPI volumes were unfavorable for 16 consecutive months from January 2021 to April 2023. During this time, the median TTM Nifty return was 7.6 percent, with returns falling below 5% in eight of the sixteen months.
While solid domestic flows have served as a healthy cushion for the market, market experts believe that favorable FPI flows are crucial for the financial markets to achieve better returns. According to analysts, the recent advancements in FPI flow are due to several variables.
“As well as strong relative macroeconomics in terms of reducing twin deficit threat (fiscal along with up-to-date account), INR resiliency, inflation dropping within the RBI’s comfort zone, in line corporate earnings, and the country’s growing large economy status in the world,” Vinod Karki and Niraj K mentioned.
India experienced a surge in FPI flows at the beginning of the year. However, FPI inflows into India were the greatest relative to other EMs since March, particularly in May.
“The financial crisis in the Western world is now contained,” Alphaniti Fintech co-founder UR Bhat stated. Sharp FPI inflows in the market have pushed equities to new highs.
However, there is pricing comfort this time around because the market has solidified at present levels for roughly 20 months.
“Earnings have also increased. As a consequence, we are in an unusual scenario in which valuations are reasonably attractive even as markets approach new highs,” explained Bhat.
The Nifty now has a valuation (price-to-earnings) advantage over the MSCI EM index of 56%. While this is much down than the recent peak of nearly 100%, it is higher than the long-term norm of 45%.
If values rise further, Karki and Karnani fear that further FPI flows to India may be hampered. According to some, FPIs may not benefit export-oriented economies.
“India will receive a lot more international flow after October. By that time, the earnings forecasts will be better,” Andrew Holland predicted. FPIs make investments in capital goods firms as the capex cycle accelerates.
Another choice of such investors is an investment in infrastructure firms involved in construction. The private sector’s railway companies, logistics, ports, as well as utilities, are included in the shopping list.
Many industries, including ports, power distribution, gearbox, and even highway construction, have their regulators to ensure that revenues from such endeavors are fairly predictable and can be forecasted.
Such projects and firms are appealing to FPIs seeking a low-risk return on investment, such as pension funds. Another favorite is the banking sector.
The massive merging of the HDFC Twins will see a lot of activity on the bourses, even though the combined weightage in the MSCI weightage is projected to decrease.
Specialized chemicals and specialist technology-based manufacturing companies are gaining traction in the midcap category. A considerable number of these businesses were listed in the years 2021 and 2022, and their efficiency since listing has proven satisfactory.
In the future, as these companies get larger and gain more exposure among potential investors, their performance will improve. India is a popular destination due to its ecosystem, large untapped demand within the country, and export possibilities with low prices.
With its PLI system, the government has incentivized various sectors, which is greatly assisting. Previously, India’s exports were limited to software, but the item list has grown significantly.
Engineering, specialty chemicals, and even iPhone manufacturing have all begun largely. Multiple manufacturers in India assemble the iPhone, contributing to the nation’s exports.
India is the world’s diamond polishing and cutting capital. It now has the potential of producing lab-produced diamonds that have been polished along with exported, or sold as premade finished jewelry.
They encompass the full value chain from beginning to end, and restrictions imposed on some nations do not prevent rough imports.
Proofread & Published By Naveenika Chauhan