After withdrawing ₹37,631 crore from Indian equities in 2022-23, foreign portfolio investors (FPIs) have started the new financial year on a positive note and pumped in ₹11,631 crore in the month of April. This is the highest fund inflow by foreign investors in the last four months, aided by a stronger rupee, reasonable valuation of stocks, as well as a surge in buying in sectors such as automobiles, financial services, IT, and capital goods. The trend is likely to continue further if the rupee may appreciate further, says VK Vijayakumar, chief investment strategist at Geojit Financial Services.
“FPIs appear to have changed their investment strategy in India in recent days. While they were sellers in the initial three months of this year, they have turned buyers in April and aggressive buyers in the last few days of April…An important macro factor that has tilted the FPI approach is the appreciation in rupee,” he says.
In April, the rupee appreciated by 40 paise or 0.5% against the U.S. dollar to 81.78, after touching a low of 82.94 in late February this year. The Indian currency gained ground against the U.S. dollar amid broad weakness of the American currency in the overseas market and a pause in the rate hike by the Reserve Bank of India in its April meeting. After six repo rate hikes in a row, the central bank kept the key lending rate unchanged at 6.5%, citing improvement in supply conditions, resilient economic activity, and stability in the financial markets.
Meanwhile, the equity benchmarks, the BSE Sensex and Nifty50 rallied 3.4% and 3.8%, respectively, last month.
“India’s current account deficit is declining and if this trend continues the rupee may appreciate further. FPIs are likely to bring more inflows into India in this context. FPIs have been buying in financial services and auto and auto components,” Vijayakumar says.
According to NSDL data, FPIs turned net buyers in both equity and debt in April. They invested ₹11,631 crore in Indian equities and ₹806 crore in the debt market. Adding to it, they pumped in ₹1,235 crore in debt securities via the Voluntary Retention Route (VRR). On the other hand, they removed ₹126 crore from hybrid instruments, taking the net investments in Indian markets to ₹13,545 crore.
This is the second consecutive month when FPIs emerged as net buyers in Indian equities after a net investment of ₹7,936 crore in March 2023. In January this year, foreign investors pulled out a record ₹28,852 crore from Indian equities as they adopted a cautious approach ahead of the Union Budget, while aggressive rate hikes by central banks globally also triggered a sell-off. In February 2023, the FPIs withdrew ₹5,294 crore from the equity market amid a sharp sell-off in Adani Group companies shares which led the market into a tailspin.
Overall, in the calendar year 2023, FPIs were net sellers in Indian equities with an outflow of ₹14,579 crore. On the other hand, they invested ₹4,268 crore in the debt market and ₹686 crore in hybrid instruments, while they removed ₹1,612 crore from the debt-VRR segment.