Foreign investors bought Indian equities for the fourth straight month in June, the highest in 10 months, due to improving macros and corporate earnings growth.
Overseas investors net bought stocks worth Rs 47,148 crore in June, the highest since August 2022, according to data from the National Securities Depository Ltd. They have been net buyers of Rs 93,228 crore worth of Indian equities till date in 2023.
Foreign portfolio investors became net buyers of Indian equities in March, buying Rs 7,936 crore worth of stocks. This comes after a sell-off of Rs 28,852 crore in January and Rs 5,294 crore in February.
"Sustained FPI flows triggered by India's steadily improving macros have taken markets to record highs. The major reason for the sustained FPI flows into India is the reversal in FPI strategy," said VK Vijayakumar, chief investment strategist, Geojit Financial Services Ltd.
January and February 2023 saw massive flows to China, triggered by China's opening after Covid and expectations of a revival in growth and earnings. The FPI strategy was ‘sell India, buy China', Vijayakumar said.
"FPI investment in India in January and February, combined, was negative Rs 34,146 crore. This strategy was based on the view that China is cheap and India is expensive," he said. "This strategy proved to be a mistake since the prospects of China deteriorated and those of India improved. The Chinese economy is struggling, and growth is expected to be muted for many years to come."
India's macros are steadily improving, with GDP growth and corporate earnings having the potential to improve further, Vijayakumar said. "So FPIs have reversed their strategy to ‘buy India, sell China'."
Valuations in India are rich from a short-term perspective. Therefore, even while continuing to invest in India, FPIs are likely to turn a bit cautious going forward, he said.
Inflows into the Indian market are coming from passive India Exchange Traded Funds, along with a lot of reallocations by global emerging market funds, said Arvind Chari, chief investment officer at Quantum Advisors India (UK) Ltd.
"Indian markets are at an all-time high, driven by strong inflows from the FII over the past few months. From a macro standpoint, India stands out relative to peer countries, with inflation moderating, investing activity picking up, and growth picking up," said Christy Mathai, fund manager, equity at Quantum Mutal Fund.
Growth hurdles for the Indian economy have been corrected to a "large extent", Mathai said. "Infrastructure has been improving consistently, corporate balance sheet strength has improved, and the financial system is in a robust state to fund the potential growth."
Sector-Wise Flow
Financial Services
Financial services saw the largest inflow at $2,343 million, or Rs 19,229 crore, in June. The sector witnessed its sixth consecutive fortnight of inflow in June.
In May, there was a $2,142 million, or Rs 17,683.9 crore, inflow of foreign equities. During this period, the Nifty Bank rose by 2.19%, according to Bloomberg data.
Automobile And Auto Components
Automobiles and auto components witnessed the second-largest inflow of $709 million, or Rs 5,821 crore, in June.
The sector saw an inflow of $1,056 million, or Rs 8,718.1 crore, in the previous month. It witnessed the sixth consecutive fortnight of inflow in June.
The Nifty Auto Index rose 6.25% during the month, as per Bloomberg.
Capital Goods
The sector witnessed the third-largest inflow of $678 million, or Rs 5,571 crore, in June. It saw an inflow of $262 million, or Rs 2,163 crore, in May.
Consumer Durables
Consumer Durables saw an inflow of $458 million, or Rs 3,765 crore, in June. In May, there was an inflow of Rs 982.4 crore in foreign equities.
Information and Technology
Information and Technology witnessed the largest outflow of foreign equities in June. It saw an outflow of $408 million, or Rs 3,355 crore. In the previous month, there was an outflow of $108 million, or Rs 891.6 crore.
During June, the Nifty IT rose 0.40%, according to Bloomberg data.
Services
The sector saw the second-largest outflow of $151 million, or Rs 1,234 crore, in June.
Oil, Gas & Consumable Fuels
Oil, gas, and consumable fuels witnessed an outflow of $71 million, or Rs 586 crore, in foreign equities.
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