Foreign investors raise their bets on Indian auto and financial sectors

• Foreign portfolio investors (FPIs) raised their bets on financial services and auto stocks in May, pumping in ₹26,373 crore during the month.
  
• Overall, FPIs pumped in ₹43,839 crore in Indian equities during the month, with 16 out of the 24 sectors witnessing inflows.
  
• The FPI momentum has sustained in the first four trading days of June so far, with inflows of ₹6,620 crore in Indian equities.
  

Foreign portfolio investors (FPIs) have accelerated their bets on the Indian markets in May, building on the momentum of the preceding three months. Strong inflows were recorded in financial services and auto stocks during the month – as they jointly accounted for ₹26,373 crore of inflows.

Overall, FPIs were net buyers in Indian equities in May, extending their purchases from the previous month. Their net investments in Indian equities stood at ₹43,839 crore. All in all, 16 out of 24 sectors witnessed inflows during the month, while seven sectors witnessed outflows and one sector remained flat.

The FPI momentum has sustained in the first four trading days of June so far, with inflows of ₹6,620 crore in Indian equities.

“A survey among foreign portfolio investors showed that India is now the consensus overweight among all emerging markets. In May, India attracted the largest investment among all emerging markets, and FPIs were sellers in China,” said VK Vijayakumar, chief investment strategist at Geojit Financial Services.

Indian equity markets also continued to surge in May, building on the momentum seen in April. During the month, the Nifty50 index surged 2.6% while the Sensex gained 2.5%. The realty and auto sectors far outperformed all other indices, with gains of 12% and 10%, respectively.

Apart from the strong FPI inflows, India’s economic growth also beat analyst expectations at 6.1% in Q4 while inflation data also cooled notably to 4.7% in April from 5.66% in March.

FII flows at 27-month high

Foreign institutional investor (FII) flows also accelerated to a 27-month high in May, rising to ₹27,856 crore. The last time FIIs bought more Indian equities than in May was back in February 2021, when they invested ₹42,044 crore.

FIIs are a subset of FPIs. The FPI category consists of FIIs, qualified foreign investors (QFIs) and other miscellaneous investment entities. FIIs comprise pension funds, mutual funds, insurance companies and investment banks, among other entities.

Momentum to sustain

The momentum in Indian equity markets is likely to sustain. The benchmark Nifty50 index hit 18,676 points in morning trade today, the highest in 2023.

“FPIs are likely to continue their investment in India in June too since the latest GDP data and high frequency indicators reflect a robust economy gaining further strength. Financials, automobiles, telecom and construction are attracting big investments,” Vijayakumar added.

While the banking, financial services and insurance (BFSI) segment has not contributed much to the upward swing in the markets over the last one month, analysts believe that once it kicks in with gains, the markets will get the boost they need to cross their all-time highs this month.

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