As per provisional figures, FIIs bought shares worth $139 million on Thursday, taking the year-to-date purchases to $15.06 billion. The Sensex closed at 20,215 on Thursday, while the Nifty closed at 6,124, just 188 points behind its all-time high. India has attracted the highest overseas investment among Asian countries, after Japan.
According to analysts, foreign investors are pumping money into India due to easy global liquidity and in the hope that India's consumption story will help revive growth. The global liquidity, coming from countries such as the US, is driving FII investments into emerging markets such as India, said S Krishna Kumar, head equity, Sundaram Mutual. He added that the recent monetary stimulus announced in Japan has also boosted FII inflows as Japanese investors look to invest in higher-yielding investments outside the country.
The government's reform measures, initiated in September 2012, also helped boost sentiment towards India. The Centre had unleashed a wave of initiatives, including easing of FDI limits in sectors like retail, capping subsidies on LPG and hiking diesel prices to help rein in the fiscal deficit and draw in foreign capital into the country. Measures to help revive investment in the economy have also been underway although investment still remains sluggish. The Centre is now incentivising the industry to invest in capex and clearing bottlenecks in the infra space, said Kumar.
In January and February, overseas investors purchased shares worth $4.09 billion and $4.14 billion, respectively. There was some slowdown in FII investments subsequently, with the months of March and April seeing net inflows to the tune of $1.9 billion and $1.18 billion, respectively. However, the floodgates opened yet again in May, with FIIs pumping in more than $3.73 billion into Indian shares.
Experts believe that easy liquidity conditions may continue in the global markets for the rest of the year although there has been some uncertainty created due to the US Federal Reserve's plan to pare down its quantitative easing programme.
Also, the expected decline of about 50 bps in key policy rates this year is likely to make borrowing cheaper for corporates and boost earnings growth of companies, which in turn could attract more FII inflows.
Even as FIIs continue to purchase Indian shares, their domestic counterparts have been on a selling spree. So far this year, domestic institutional investors, which include MFs, insurance companies and domestic institutions, have offloaded shares close to about $9 billion.