Foreign investors have infused nearly Rs 33,700 crore into Indian equities so far this month, driven largely by a US interest rate cut and the resilience of the Indian market. This represents the second-highest monthly inflow in 2024, with the highest being in March when Foreign Portfolio Investors (FPIs) invested Rs 35,100 crore, according to data from depositories.
Strong FPI Inflows Continue
Data shows that FPIs have pumped Rs 33,691 crore into Indian equities till September 20. This marks the continuation of a positive trend for foreign investments, with FPIs having invested a total of Rs 76,572 crore in Indian equities so far this year. The buying streak has been consistent since June, following net withdrawals of Rs 34,252 crore in April and May.
US Rate Cut Fuels Aggressive Buying
The September inflows were bolstered by expectations of a US Federal Reserve rate cut, which materialized on September 18, when the Fed reduced rates by 50 basis points.
This move, regarded as a significant pivot, marked the beginning of a rate-cutting cycle that is expected to see the US Federal Reserve rate fall to 3.4% by the end of 2025. Declining US bond yields have encouraged FPIs to shift their focus to emerging markets, including India, where returns appear more attractive.
Debt Market Attracts Investments Too
In addition to equities, FPIs invested Rs 7,361 crore in Indian debt through the Voluntary Retention Route (VRR), which promotes long-term investments, and Rs 19,601 crore via the Fully Accessible Route (FRR), designed to enhance liquidity and access for foreign investors.
Total FII Investments Surge
Overall, the total FPI investment in Indian equities for September stood at Rs 33,699 crore as of September 20. This brings total FPI investments in Indian equities to Rs 76,585 crore for 2024. The combination of the US rate cut and declining bond yields is expected to keep fund flows into emerging markets like India steady, making the country an attractive destination for foreign investors.
Experts on September 2024 Inflows
Commenting on the V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services said that The week ending 20th September witnessed a major shift in FII activity with FIIs turning aggressive buyers. The ferocity of the FII buying can be noticed in the massive Rs 14064 crore buying in the cash market on 20th September. This buy figure is a 3-year high. The trigger for this aggressive buying by FIIs was the 50 bp rate cut by the Fed on 18th, which is regarded as a big Fed pivot, marking the beginning of a rate cutting cycle. The Fed rate is expected to decline steadily to 3.4% by end 2025. Bond yields in the US are steadily declining, nudging the FIIs to invest in emerging markets like India.
Vijayakumar also added Total FII investment this month till 20th September stood at Rs 33699 crores taking the total FII investment in India to Rs 76585 crores in 2024, so far. The trend of FII buying is likely to continue in the coming days. Banking stocks have turned attractive after news of reduction in the credit-deposit gap. Since banking stocks are fairly valued in this otherwise overvalued market, the buying trend in banking stocks may continue thereby lifting the indexes, too. The flood of FII money has appreciated the INR by 0.4% for the week ended 20th September. This can boost further FII buying. The concern is the market getting overheated and valuations getting stretched.