After two consecutive months of being net sellers, foreign portfolio investors turned net buyers in November, due to softening of U.S. Treasury yields and the resilience of the domestic market.
FPIs have invested Rs 9,001 crore in Indian equities in the month of November.
In the first fortnight of the month, FPI flows were negative for the fifth consecutive fortnight, although the quantum was less than previous fortnights.
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Foreign investors have bought Indian equities worth Rs 1,14,716 crore so far this year, according to NSDL data.
Following U.S. Treasury yields peaking at 5% in October, it experienced a downward trend in most sessions over the month. This decline gathered pace amid growing speculation that the U.S. Federal Reserve might initiate interest rate cuts next year.
"Participants expected that the data arriving in the coming months would help clarify the extent to which the disinflation process was continuing, aggregate demand was moderating in the face of tighter financial and credit conditions, and labour markets were reaching a better balance between demand and supply" the FOMC Minutes said.
Indian markets have also shown resilience, with the Nifty 50 recording its best month of 2023 in November, with gains of 5.52%.
"Foreign portfolio investors show a clear inclination towards larger sectors, notably financials, FMCG, and oil and gas," Yes Securities said in a Nov. 24 note.
An analysis of market participation patterns reveals a distinct preference among investor groups. Retail investors tend to hold an overweight position in smaller sectors, while foreign portfolio investors favour larger sectors, the note said. Domestic institutional investors also exhibit a preference for larger sectors, except for financials, it said.
India is still the largest recipient of FPI flows so far this year among emerging markets. FPIs were sellers in Thailand, the Philippines, Indonesia, Malaysia and Vietnam, according to Bloomberg data.
"FPIs have reversed their selling strategy in India. Decline in U.S. bond yields and the resilience of the Indian market have forced the FPIs to halt their selling," Dr VK Vijayakumar, chief investment strategist at Geojit Financial Services, said.
"The better-than-expected decline in inflation in the U.S. has given the market confidence to assume that the Fed is done with rate hike," Vijayakumar said.
Foreign portfolio investment in the domestic debt market hit a six-year high in November, driven by robust yields and the domestic bonds' inclusion in JPMorgan's Emerging Market Global Bond Index.
Foreign portfolio investors have infused Rs 14,556 crore as of Nov. 29, according to data from the National Securities Depository Ltd. The previous highest monthly inflow by FPIs was recorded in October 2017.
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