News

Published: Feb 21, 2023
Updated: Feb 21, 2023

Foreign Investors Renew Interest in Indian Equity Markets, Invest Rs 7,600 Cr in a Week

Foreign portfolio investors (FPIs) have shown renewed interest in the Indian equity markets with an investment of over Rs 7,600 crore in the week ended February 17. The investment comes after a net outflow of Rs 3,920 crore from FPIs from equities in the previous week, as per data from the depositories. The sustained selling in India from early January seems to have ended, indicating the prospect of better returns.

Market Recovery After Adani Shock

The markets began to recover from the Adani shock, and flows from FPIs also improved, suggesting their renewed interest in the prospects of the Indian equity markets. Himanshu Srivastava, Associate Director - Manager Research at Morningstar India, said, "Given a more stable economy, strong macros, and prospects of higher economic growth, FPIs are now willing to look beyond valuation and other concerns, and pay a premium to the Indian markets."

FPIs Selling in January

FPIs were net sellers to the tune of Rs 38,524 crore in 2023 until February 10, including Rs 28,852 crore in January. The outflows from Indian equities could be attributed to relatively higher valuations, which prompted FPIs to shift their focus towards other markets having relatively attractive valuations. The continuing rate hikes by major central banks globally to curb inflation have also been a concern for FPIs.

Attractive Valuation of Other Markets

Markets such as China, which saw significant erosion in their equity markets due to a series of strict lockdowns, attracted foreign investors after opening up, given its attractive valuation. India's underperformance this year is another factor, with NSE's benchmark index Nifty 50 down by 1.4%, while Taiwan index is up by 8.3%, and Shanghai composite is up by 3.4%.

FPIs' Sectoral Investments

FPIs have been buyers in autos and auto components and construction, while they were sellers in banking and financial services in which they are sitting on good profits, according to VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

India enjoying the fruits of more stability and resilient economy

The investment by FPIs in the Indian equity markets shows renewed interest and prospects of better returns, given a more stable economy, strong macros, and prospects of higher economic growth. FPIs have been selling in India since early January due to concerns of higher valuations and continuing rate hikes by major central banks globally. However, FPIs are now willing to look beyond valuation and pay a premium to the Indian markets, which has the potential to deliver better returns.