FPIs invest Rs 33,600 crore in equities in July amid policy reforms, strong earnings

FPI inflows grow: Foreign investors have injected over Rs 33,600 crore into Indian equities so far in July, driven by expectations of ongoing policy reforms, sustained economic growth, and a robust earnings season. 

However, they withdrew over Rs 7,200 crore from equities between July 24 and 26, following the government's hike in taxes on Futures and Options trades (F&O) and capital gains from equity investments in the Budget.

Market experts maintain that the Indian equity market is well-positioned to attract foreign investments this year, despite potential monthly volatility due to short-term news. Nimesh Chandan, CIO of Bajaj Finserv AMC, commented, “Indian equity market and bond market are favourably placed for the year. This should attract foreign flows into the country. There could be some volatility in the flows on a month-on-month basis due to short-term news flows.”

FPI net inflow 

Data from depositories indicate that foreign portfolio investors (FPIs) have made a net inflow of Rs 33,688 crore in equities this month (up to July 26). This follows an inflow of Rs 26,565 crore in June, driven by political stability and a sharp market rebound. Prior to this, FPIs withdrew Rs 25,586 crore in May due to election-related uncertainties and over Rs 8,700 crore in April due to concerns over changes in India's tax treaty with Mauritius and rising US bond yields.

Himanshu Srivastava, Associate Director - Manager Research at Morningstar Investment Research India, noted, “Economically, India stands on a strong footing. Moreover, the better-than-expected earnings season so far has improved corporate India's balance sheet, which helps build investor confidence. Furthermore, there is growing anticipation of an interest rate cut by the US Federal Reserve in September.”

Upward revisions in India's GDP forecast by the IMF and ADB, coupled with a slowdown in China, have also worked in India's favor. A notable trend over the past 30 months is that domestic institutional investors (DIIs) have consistently bought equities whenever FPIs have sold. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, highlighted that the influx of money into domestic mutual funds and the growing influence of retail investors have bolstered domestic investors compared to their foreign counterparts.

In addition to equities, FPIs invested Rs 19,223 crore in the debt market during the same period, bringing the total debt market investments to Rs 87,847 crore for the year. Chandan from Bajaj Finserv AMC added that the inclusion of Indian bonds in international bond indices is expected to attract more foreign flows into the Indian bond market, potentially pushing G-Sec yields lower.

(With PTI inputs)