FPIs turn net buyers in Nov; invest Rs 36,329 Cr in equities

After pulling out money from the Indian equities market in the past two months, FPIs made a strong comeback in November with a net investment of Rs 36,329 crore on the weakening of the US dollar index and positivity about overall macroeconomic trends.

This was the third month (July, August, and November) this year when FPIs witnessed net inflows. Moreover, they started the month of December on a positive note.

Going forward, the flow trajectory is expected to remain positive in December. However, some shift could be seen from expensive stocks to value stocks, Anita Gandhi, Whole Time Director and Head Institutional Business at Arihant Capital, said.

India will get its fair share of Foreign Portfolio Investors (FPIs) money, however, the high valuation will be a deterrent, VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said.

According to data with the depositories, FPIs invested a net sum of Rs 36,329 crore in equities in November.

"The cooling US inflation, sluggish crude oil prices, decline in metals and freight rates and expectations of slower pace of rate hikes by the US Federal Reserve have contributed to the positive sentiment," Kaizad Hozdar Investment Advisor, TrustPlutus Wealth (India) Pvt Ltd, said.

Further, India has the best earnings growth outlook amongst the top five economies. That coupled with a weakening US dollar index, robust tax collections and high double-digit credit growth make India better positioned compared to other emerging economies, he added.

Also, the second quarterly financial numbers were decent for the banking and auto sectors, which are barometers of economic growth. This also resulted in decent positive flows by FPIs in equity markets, Gandhi said.

The latest fund infusion came following a net outflow of just Rs 8 crore in October and Rs 7,624 crore in September.

Prior to these outflows, FPIs were net buyers in August to the tune of 51,200 crore and nearly Rs 5,000 crore in July. Before that, foreign investors were net sellers in Indian equities for nine months in a row which started in October last year as the dollar was continuously rising.

So far this year, the total outflow by FPIs in equities stood at Rs 1.25 lakh crore.

"In the short run, the most important factor determining FPI strategy is the movement in the dollar index. When the dollar index moves up and is expected to trend up, they sell. Conversely, when the dollar index declines and is expected to trend down, they buy," Geojit's Vijayakumar said.

In terms of sectors, FPI buying was seen in financial services, IT, auto, FMCG, capital goods and telecom.

According to him, FPIs were sellers in financials in October, but were buyers in November. There is no consistency in their sectoral selling strategy.

On the other hand, foreign investors have pulled out nearly Rs 1,637 crore from the debt market during the period under review, the data showed.

Global majors like the US, UK, and Canada are undergoing interest rate hikes. Though India was also undergoing rate hikes, the pace of hikes was higher in the western world, reducing the interest rate arbitrage. This has resulted in some outflow from the debt market, Arihant Capital's Gandhi said.

Apart from India, FPI flows were positive across emerging markets such as the Philippines, South Korea, Taiwan, Thailand and Indonesia so far this month.