FPIs make stellar comeback in September, pump ₹10,978 crore in Indian equities: Here’s what fueled the inflows

Foreign portfolio investors (FPIs) made a remarkable comeback to Indian markets in September, snapping their three-month moderation, driven by domestic and global factors. FPIs were consistent buyers in June and July after election-related jitters faded and stability returned to Indian markets. However, FPIs halted their buying streak with the onset of the new fiscal year 2024-25 (FY25).

FPIs invested ₹10,978 crore worth of Indian equities, and the net investment stood at ₹19,087 crore as of September 6, taking into account debt, hybrid, debt-VRR, and equities, according to the National Securities Depository Ltd (NSDL) data. The total investment in debt markets moderated to ₹94 crore so far this month.

Also Read: FPI inflows moderate to ₹7,320 crore in August, debt market investment steady: 5 key factors behind sell-off

"Early September witnessed buying by FPIs mainly due to the resilience of the Indian market. For September through 6th FPIs invested ₹9,642 crore in equity through the exchanges and ₹1,388 crore through the ‘primary market and others’ category,'' said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

What attracted FPIs back to Indian markets?

The resilience of the Indian market attracted FPIs back to equities as the domestic equity benchmarks Sensex and Nifty 50 closed August on a historic note buoyed by a strong global market trend as expectations for a US rate cut gained traction. 

In its best winning streak since its launch in 1996, the NSE Nifty 50 rose for 14 consecutive sessions, logging its longest-ever rally —a streak not seen in 31 years. Year-to-date (YTD), the Nifty 50 is up 16 per cent, while the Sensex has gained 14 per cent. The broader indices also mostly aligned with the benchmarks, gaining over one per cent each.

Global market sentiment has notably shifted towards caution, as evidenced by Nvidia's 25 per cent decline after reaching a record high in June. Concerns over a potential US recession and China's ongoing economic challenges are critical factors for investors re-evaluating their allocations.

The latest jobs data in the US indicate a slowing US economy, which in turn has pushed up expectations of a Fed rate cut in September, perhaps by even 50 bp. The consequent fall in the US 10-year bond yield to 3.73 per cent is positive for FPI inflows into emerging markets like India. 

Also Read: Nifty smallcap outperforms benchmark, rises over 52% in 12 month; IT, healthcare top gainers in August

‘’However, the elevated valuations are a concern. If the US growth concerns impact global equity markets in the coming days, FPIs are likely to use the opportunity to buy in India,'' said Dr. V K Vijayakumar.

According to Sunil Damania, Chief Investment Officer, MojoPMS, flows from FPIs are influenced by a complex interplay of factors beyond bond inclusion. Key drivers include geopolitical dynamics, the health of the US economy, Yen borrowings, and prevailing risk-off strategies. 

"If the risk-off strategy continues to gain traction, emerging markets may experience a slowdown in FPI inflows,'' said Damania.

Also Read: Nifty up 16% YTD; Mid, small-caps outperform largecaps in last 5 years; L&T, PNB Housing, others among top picks

FPIs inflow outlook

Analysts say the selling trend is likely to continue since India is the most expensive market in the world now, and “it is rational for FPIs” to sell here and move the money to cheaper markets. "This picture doesn’t change even if the market turns more bullish on fears regarding US recession receding,'' said Dr. V K Vijayakumar.

"While September is likely to see continued interest from FPIs, the flows would be shaped by a combination of domestic political stability, economic indicators, global interest rate movements, market valuations, sectoral preferences, and the attractiveness of the debt market,'' said Vipul Bhowar of Waterfield Advisors.

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.