Foreign investors return to India: Here’s why FPI inflows into Indian stock market is soaring again

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Published: May 11, 2020 6:41 PM

After having turned net-sellers and washing their hands off nearly Rs 1.18 lakh crore in Indian stocks in the month of March, foreign portfolio investors have reversed the trend in the last few weeks.

With FPIs offloading both equities and debt, the rupee plunged to record lows and depreciated 5.6% against the dollar during the quarter.Since the beginning of March, during the prior to the lockdown, 14 of the 15 trading days saw net outflows from FPIs.

After having turned net-sellers and washing their hands off nearly Rs 1.18 lakh crore in Indian stocks in the month of March, foreign portfolio investors (FPI) have reversed the trend in the last few weeks. In a complete turnaround, FPIs even turned net buyers during the first week of May, buying Rs 18,637 crore worth of equities, and pulling out a net Rs 2,679 crore from the debt segment. Majority of the selling done by FPIs since the beginning of March came ahead of the lockdown announcement. A significant fall in outflows has been seen since then, CARE Ratings said in a report.

Since the beginning of March, during the prior to the lockdown, 14 of the 15 trading days saw net outflows from FPIs. “Prior to the announcement of the nation-wide lockdown, the FPIs had turned net sellers aggregating $13.6 billion, of which outflows of $6.6 bn were witnessed in the debt segment and $7 billion were witnessed in the equity segment,” the report by Care Ratings said. During the first lockdown, between March 25 and April 14, the net outflows were significantly lower at $2.8 billion. This was the period when markets functioned amidst truncated working hours and RBI along with the government announced monetary and fiscal measures.

The second half of April, marred by the winding up of six debt fund schemes by Franklin Templeton saw FPI inflows of $556 million in the first few days. However, after the Franklin Templeton fiasco net FPI outflows of $963 million were recorded, according to care ratings. FPIs invested $362 million in Indian markets during this period.

As soon as the month of May began FPIs have turned the tables around and invested $2 billion in the Indian market with most of the investment flowing in equities, while debt markets have seen outflows. “It pans to the strength of the economy and the handling of the lockdown. Global flows will keep on seeing a rotation. Right now the call is that weaker oil means it is a very good time for India,” Sanjiv Bhasin, Director IIFL Securities told Financial Express Online. “We think the rupee got overextended at Rs 76.5 so it is a good time if you are an outsider, particularly a foreign portfolio investor to bring in money,  you get the advantage of the rupee also,” he added.

India has seen far less coronavirus cases as compared to other major economies. The equity markets in India have also performed well since the nation-wide lockdown was implemented. Bhasin added that the US Dollar has reached its peak giving the Indian rupee and advantage to strengthen from now on. “How fast the stimulus comes is what the markets are looking towards. Foreign investors are looking at India as a good option probably as the best in emerging markets and along with that valuations have been pretty good to come in at this time,” he said.

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