Rising uncertainty over the outcome of U.S. Presidential election and the Fed rate hike trajectory had turned foreign portfolio investors (FPIs) into net sellers of Indian equities in October 2016. Donald Trump's win only accelerated the outflows.
On the other hand, domestic institutional investors (DIIs) had started turning net buyers, driven by strong flows into equity mutual funds. But from a peak net inflow of Rs 18,277 crore in November 2016, domestic flows have moderated to Rs 3,200 crore this month (till February 16).
However, foreign fund selling has not only abated, but has reversed. FPIs have turned net buyers so far in February, mopping up equities worth Rs 2,118 crore.
That data excludes a single-day net inflow of Rs 8,059 crore on February 17, largely on account of trades in HDFC Bank.
Foreign inflows into Indian stocks so far this month are the highest in Asia, according to Bloomberg.
Are these inflows sustainable? It depends on two factors…
- U.S. Fed's decision in March, where the probability of a rate hike has risen to 36%.
- The outcome of the state elections.
According to Abhinav Khanna, managing director and head of equity for Citibank India, “The results will be viewed (by them) as a verdict on demonetisation, so the interest level on what happens in the assembly elections is quite high among foreign investors.”
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