September has emerged as the best month for foreign flows in 2024, with foreign portfolio investors (FPIs) buying shares worth nearly $7 billion. This marks the highest net buying since December 2023, according to data from NSDL.

FPI net buying in September stood at approximately $6.85 billion, a dramatic increase from the $873 million recorded in August. This also represents the strongest monthly buying activity since December last year, when FPIs purchased $7.9 billion in Indian equities. 

Strong foreign interest in Indian Equities in 2024

For the current calendar year, FPIs have been net buyers of Indian equities, accumulating over $12 billion so far. Analysts attribute this robust trend to dovish signals from the US Federal Reserve, particularly following the rate cut on September 18.

“The September 18th rate cut and dovish commentary by the Fed represent a pivotal shift in interest rates, driving sustained flows to emerging markets like India,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Mixed trends among Emerging Markets

FPI flows to emerging markets in 2024 have shown mixed trends, noted Shrikant Chouhan, Head of Equity Research at Kotak Securities. Brazil saw marginal outflows of $0.02 billion, while South Korea experienced significant outflows of $5.09 billion, followed by Taiwan with $2.15 billion and Vietnam with $0.08 billion in outflows.

In contrast, India attracted $5.72 billion in inflows, Indonesia received $1.81 billion, Malaysia recorded $0.20 billion, the Philippines saw $0.34 billion, and Thailand garnered $0.95 billion in inflows during 2024.

With FPIs continuing to show strong interest in Indian markets, particularly in equities and debt, the outlook for foreign investments in the country remains optimistic as the year progresses.

Growing interest in Indian debt market

FPIs have also been betting heavily on Indian debt, with September’s investments amounting to $3.75 billion. This brings total debt investments in 2024 to $17.09 billion.

In total, FPI investments across all categories — debt, equity, alternative investment funds (AIF), mutual funds (MF), and hybrid funds — reached approximately $30.66 billion by September, surpassing last year’s total of $28.70 billion.

According to Krishna Appala, Senior Research Analyst at Capitalmind Research, FPIs’ interest in Indian debt has grown significantly, bolstered by the inclusion of Indian bonds in JPMorgan’s bond index.

“With large-cap valuations still attractive and FIIs returning strongly, the market outlook remains positive,” Appala said.

Competition from Hong Kong amidst China’s economic stimulus

While India has benefited from FPI inflows, Vijayakumar also highlighted significant inflows into the Hong Kong market, which posted a 14 percent gain in September. 

“The monetary and fiscal stimulus in China is expected to boost the Chinese economy and stocks listed in Hong Kong. If the Hang Seng’s outperformance continues, it is possible that more funds could shift to Hong Kong, given the market’s attractive valuation,” he added.