FIIs pump in ₹6,000 crore in 5 sessions as emerging markets turn attractive again

• After selling equities from the start of 2023, FIIs reversed the trend and started buying Indian equities from February 10.
• As US inflation data continues to disappoint, emerging markets like India turn attractive again.
• India’s growth story is intact and that’s why FIIs keep coming back, say analysts.

Foreign institutional investors (FIIs) bought equities worth over ₹6,000 crore in India in the last five trading sessions of February after a sharp sell off to the tune of ₹41,464 crore witnessed in January.

After selling equities from the start of 2023, FIIs reversed the trend and started buying Indian equities from February 10.

Due to negative flows from FIIs so far this year, Indian benchmark indices saw extreme volatility with Sensex, Nifty50 underperforming as compared to other major markets.

FII interest in emerging markets like India comes from the fact that US inflation still remains disappointing. Although the US inflation slowed down in January, it was still higher than expected at 6.4% on year, which raised concerns that the Fed will continue to be hawkish in its monetary policy.

“Higher US inflation data and lower jobless claim data led to hawkish commentaries by some of the US Fed officials which dented sentiments and led to the renewed fear of aggressive rate hikes in the subsequent meets to combat sticky inflation,” said Siddhartha Khemka, head - retail research at Motilal Oswal Financial Services.

Deepak Jasani, head of retail research, HDFC Securities says that emerging markets are now back in favour. “The return of foreign institutional flows currently has more to do with emerging markets coming back in favor. Global investors are becoming less bullish on the US due to the expected elongated rate hike cycle, rising trade deficit, elevated debt levels/ceiling issues and other not so encouraging data points. Emerging markets are turning more favorable in this situation when us dollar seems to be peaking out,” he added.

Analysts also say that India’s growth story is intact, which is why FIIs keep coming back. Sanjeev Hota, vice president, head of research at Sharekhan BNP Paribas predicts that India is expected to have net FII inflows this year, as last year saw sharp outflows.

“India offers a kind of stable structural growth story compared to other parts of the world, which is why FIIs cannot stay away from India. There could be volatility in the foreign fund flows but on a whole year basis, positive flows will be coming in India. Empirical data shows India has never witnessed FII outflows two years in a row," Hota told Business Insider India.

Source: NSE

Analysts are confident that the home market would do better even in the coming years and India will remain a long-term investment destination even among G-20 countries.

Morgan Stanley had predicted last year that India could become the world’s third largest economy and stock market. It is currently the world’s fifth largest economy.

At the same time, domestic institutional investors (DIIs) bought nearly ₹3,000 crore in the last five sessions. Domestic Institutional Investors are institutions like insurance companies, mutual fund houses, pension funds or provident funds.

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