FPIs pump Rs 33,700 crore in equities in September amid US rate cut, domestic market resilience
Sep 22, 2024, 13:23 IST
Foreign investors have injected close to Rs 33,700 crore in domestic equities this month, primarily due to interest rate cuts in the US and the resilience of the Indian market. This also marks the second highest inflow in a month this year so far, the last one being in March when Foreign Portfolio Investors (FPIs) infused Rs 35,100 crore, data with the depositories showed.
Going ahead, the trend of FPIs buying is likely to continue in the coming days, V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said. According to the data with the depositories, Foreign Portfolio Investors put in a net investment of Rs 33,691 crore into equities this month (till September 20).
With this, FPIs investment in equities reached Rs 76,572 crore so far this year. Since June, FPIs have been consistently buying equities. Before that, they pulled out funds to the tune of Rs 34,252 crore in April-May.
In September, FPIs remained bullish, purchasing Indian equities on expectations of a US Federal Reserve rate cut and a rate cut on September 18 further fuelled their aggressive buying behaviour.
"The trigger for the aggressive buying by FPIs was the 50 basis points rate cut by the US Federal Reserve on September 18, which is regarded as a big Fed pivot, marking the beginning of a rate cutting cycle. The Fed rate is expected to decline steadily to 3.4 per cent by end 2025. Bond yields in the US are steadily declining, nudging the FPIs to invest in emerging markets like India," Vijayakumar said.
For global markets, the weakening US dollar and dovish Fed stance make Indian equities increasingly appealing. The rupee's strengthening reflects confidence in India's stability, although it could challenge the export sector, Robin Arya, smallcase Manager, and Founder & CEO at research analyst firm GoalFi, said.
Additionally, balanced fiscal deficits, rate cut impacts on the Indian currency, strong valuations, and RBI's approach to keep inflation under control without a rate cut are the primary factors for making emerging markets like India a sweet spot, Manoj Purohit, Partner and leader, FS Tax, Tax and Regulatory Services, BDO India, said.
To add, the IPOs announced this year attracted a large chunk of foreign funds making the Indian capital market buoyant and a lucrative place to shift their positions from other riskier countries, he added.
The flood of FPI money has appreciated the Indian Rupee (INR) by 0.4% for the week ended September 20, This can boost further buying.
However, the concern is the market getting overheated and valuations getting stretched. Apart from equities, FPIs infused Rs 7,361 crore into debt through the Voluntary Retention Route (VRR) and Rs 19,601 crore via the Fully Accessible Route (FRR). The VRR encourages long-term investment while the FRR enhances liquidity and access for foreign investors.
Market experts are closely monitoring the RBI to determine if it will align with the US Fed by cutting the repo rate in October or delaying the decision until December.
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Going ahead, the trend of FPIs buying is likely to continue in the coming days, V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said. According to the data with the depositories, Foreign Portfolio Investors put in a net investment of Rs 33,691 crore into equities this month (till September 20).
With this, FPIs investment in equities reached Rs 76,572 crore so far this year. Since June, FPIs have been consistently buying equities. Before that, they pulled out funds to the tune of Rs 34,252 crore in April-May.
In September, FPIs remained bullish, purchasing Indian equities on expectations of a US Federal Reserve rate cut and a rate cut on September 18 further fuelled their aggressive buying behaviour.
"The trigger for the aggressive buying by FPIs was the 50 basis points rate cut by the US Federal Reserve on September 18, which is regarded as a big Fed pivot, marking the beginning of a rate cutting cycle. The Fed rate is expected to decline steadily to 3.4 per cent by end 2025. Bond yields in the US are steadily declining, nudging the FPIs to invest in emerging markets like India," Vijayakumar said.
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Additionally, balanced fiscal deficits, rate cut impacts on the Indian currency, strong valuations, and RBI's approach to keep inflation under control without a rate cut are the primary factors for making emerging markets like India a sweet spot, Manoj Purohit, Partner and leader, FS Tax, Tax and Regulatory Services, BDO India, said.
To add, the IPOs announced this year attracted a large chunk of foreign funds making the Indian capital market buoyant and a lucrative place to shift their positions from other riskier countries, he added.
The flood of FPI money has appreciated the Indian Rupee (INR) by 0.4% for the week ended September 20, This can boost further buying.
However, the concern is the market getting overheated and valuations getting stretched. Apart from equities, FPIs infused Rs 7,361 crore into debt through the Voluntary Retention Route (VRR) and Rs 19,601 crore via the Fully Accessible Route (FRR). The VRR encourages long-term investment while the FRR enhances liquidity and access for foreign investors.
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These inflows into both equities and debt highlight the potential for renewed FPI engagement, but ongoing global volatility and recession fears reminds the delicate balance ahead. The actions of the RBI will be crucial in this evolving landscape, GoalFi's Arya said. Market experts are closely monitoring the RBI to determine if it will align with the US Fed by cutting the repo rate in October or delaying the decision until December.