Continuing with their bullish stance on India for the second month, overseas investors have pumped in over USD 1 billion into the capital markets in April so far, buoyed by the recent rate cut by the Reserve Bank and hopes of a good monsoon.
It follows a staggering inflow of Rs 19,967 crore in the capital markets — equities and debt — last month.
FPIs turned net buyers of equities in March after pulling out a massive Rs 41,661 crore from the market in the previous four months (November to February).
Overall, so far this year, FPIs have invested Rs 8,515 crore in equities while withdrawing Rs 2,810 crore in the debt market, resulting in a net inflow of Rs 5,705 crore.
Market experts attributed the huge inflow this month to the rate cut by RBI in its first monetary policy meet of 2016-17 on April 5.
RBI had reduced the short-term lending rate by 0.25 per cent to over a five-year low of 6.5 per cent.
According to data available with depositories, foreign portfolio investors (FPIs) invested Rs 4,020 crore in equities this month till April 13 while it stood at Rs 4,548 crore for the debt market, leading to a total inflow of Rs 8,568 crore (USD 1.3 billion).
“Following the recent rate cut by RBI, bond prices have rallied (prices move inversely to rate), which has led to inflows from FPIs in anticipation of further price appreciation in future,” SAS Online Chief Operating Officer (COO) Siddhant Jain said.
“Also, in the recent hike by capital markets regulator Sebi in the FPI investment limit for government debt will further lead to more FPI inflows.”
The Indian Meteorological Department has predicted that the monsoon will be “above normal” with a fair distribution across the country.
“Participants were upbeat after a host of factors namely, forecast of good rains, further easing of consumer price inflation and a rebound in industrial production,” said Shreyash Devalkar Fund Manager-Equities at BNP Paribas Mutual Fund.
Capital inflows by FPIs are often referred to as hot money due to their unpredictability although the funds continue to remain one of the key drivers of the stock market.