Foreign portfolio investors (FPIs) have pumped over Rs 87,000 crore (over $10 billion) into domestic equities this quarter—the most since the three months ending June 2023. A combination of better growth prospects, increased weightage in global indices, and large initial public offerings (IPOs) have ensured a healthy influx of foreign money to the Indian markets, which remain pricey vis-à-vis global counterparts.
FPI flows slumped in the first two quarters (March and June) of calendar 2024 after pumping in Rs 53,036 crore in the quarter that ended December 2023. In the March 2024 quarter, foreign investors were net buyers of Rs 8,786 crore, and in June 2024, they were net sellers to the tune of Rs 3,040 crore.
The muted flows were largely on account of the uncertainty surrounding the outcome of India’s parliamentary election and the shock verdict, which was contrary to expectations of Prime Minister Narendra Modi securing a simple majority on his own.
Though the Modi-led National Democratic Alliance returned to power, it is dependent on allies for its survival, unlike in the previous two terms. But even during these phases of muted flows, FPIs were huge buyers in the primary market.
Foreign investors invested Rs 13,013 crore during the three months ending March 2024 and Rs 22,030 crore in the next three months through the primary markets, which include IPOs, follow-on public offerings (FPOs), rights issues, and qualified institutional placements (QIPs).
India has had a blockbuster IPO market this year. Till the end of August 2024, 50 Indian firms together raised Rs 53,453 crore through IPOs. And many large issuances, including those of Hyundai Motors India unit, are likely to hit the market in the coming months. The opportunity to buy companies with potential at the listing stage and the gains given by these newly listed firms are wooing FPIs to bet on IPOs. The BSE IPO index, a gauge tracking newly listed firms, has surged 38 per cent in 2024.
The September quarter saw FPIs lapping up shares from the secondary market as well, with their quarterly stock market purchases exceeding investment via the primary markets for the first time this year.
Political and policy continuity after the formation of the union government and hopes of better flows after the rate cut by the US Federal Reserve have made FPIs more bullish on India. The broad-based gains in Indian markets are also a pull factor despite the elevated valuations. The benchmark Nifty is trading at a 12-month forward price-to-earnings (P/E) ratio of 21.2x against its 10-year average of 20.7x.
“Some of the issuances in the primary market have been of good companies. The weightage of India going up will attract flows from passive funds. Now, there is a possibility of the RBI cutting rates as well. Emerging markets do well when the dollar gets weaker, and India’s growth story makes it a favourable destination for FPIs despite the rich valuations. Adverse geopolitical factors and the US election could add some volatility,” said Andrew Holland, CEO of Avendus Capital Public Markets Alternate Strategies.
With the US Federal Reserve cutting policy rates by 50 basis points and indicating two more hikes this year, experts believe the FPI flows could continue to remain favourable, provided there is good earnings delivery.
“Initially, there will be some euphoria because of rate cuts, and probably, there will be more risk-taking. However, a rate cut is not a guarantee for robust flows, as there have been occasions when markets have not done well after the Fed cuts. We have to see whether the earnings for the September quarter justify the valuations,” said UR Bhat, cofounder of Alphaniti Fintech.
First Published: Sep 23 2024 | 7:47 PM IST
