After being net sellers in the last two months, a U-turn by FIIs comes amid expectations that reforms will continue after the elections. Improved GDP growth forecast and solid earnings by India Inc has also increased the appeal for FIIs, analysts say.
“Political stability despite the BJP not getting majority on its own, and the sharp rebound in markets aided by steady DII buying and aggressive retail buying, has forced the FIIs to turn buyers in India. It appears that FIIs have realised that selling in the most performing market would be a wrong strategy. FII buying can sustain provided there is no sharp up move in U.S. bond yields,” said Dr VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
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India’s inclusion in the JP Morgan Bond Index is also positive as it will end up reducing the cost of borrowing for the government and reduce the cost of capital for India Inc.
First fortnight data of June month shows FIIs bought stocks from real estate, telecom and financial services sectors but sold IT, metals and oil and gas.
“FII buying has been focused on a few specific stocks rather than being widespread across the market or sectors. This is because Indian equities are still considered overvalued by FIIs. Foreign investors are favouring financials, auto, capital goods, real estate, and select consumer sectors. It is expected that FIIs will make selective investments in specific sectors and stocks instead of broad-based buying across the market,” said Vipul Bhowar of Listed Investments, Waterfield Advisors.
Looking ahead, attention will gradually shift towards the Budget and Q1 earnings, which could determine the sustainability of foreign flows. “The primary goal of including the bond index is to attract foreign investment into the Indian debt market rather than the equity market. As foreign investors become more familiar with the Indian fixed-income market, they may start to explore other investment opportunities, thereby opening up new avenues for growth and diversification, which should be a source of optimism for the future of FII in India,” Bhowar said.
“While India would continue to be a preferred market for FPI flows, the actual inflows may not be the highest among emerging markets due to intermittent volatility and shifting global investor sentiments. However, the long-term outlook remains positive, providing reassurance about the stability of FII flows in India,” he said.
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