After being net sellers in the last two months, the U-turn by FIIs comes amid expectations that the correction will continue after the elections. An improved GDP growth forecast and solid earnings by India Inc also added to the appeal for FIIs, analysts said.
“Despite the BJP not getting a majority on its own, political stability and sharp rally in the markets due to steady buying by DIIs and aggressive retail buying has forced FIIs to turn to buyers in India. It seems that FIIs have realized that selling in the highest performing market would be a wrong strategy. FII buying may be sustained if there is no sharp rise in US bond yields,” said Dr. Geojit Financial Services, Chief Investment Strategist. VK Vijayakumar said.
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India’s inclusion in the JP Morgan bond index is also positive as it will reduce borrowing costs for the government and reduce the cost of capital for India Inc.
Data for the first fortnight of June showed that FIIs bought stocks from the real estate, telecom and financial services sectors but sold IT, metals and oil and gas.
“FIIs’ buying is concentrated on certain stocks rather than being broad across the entire market or sectors. This is because Indian equities are still considered overvalued by FIIs. Foreign investors are favoring the financial, auto, capital goods, real estate and consumer discretionary sectors. It is expected that FIIs will make selective investments in specific sectors and stocks rather than broad-based buying across the market,” said Vipul Bhovar of Listed Investments, Waterfield Advisors.
Looking ahead, focus will gradually shift to the budget and Q1 earnings, which may determine the sustainability of foreign inflows. “The primary objective of including the bond index is to attract foreign investment in the Indian debt market rather than the equity market. As foreign investors become more familiar with the Indian fixed-income market, they may start looking for other investment opportunities, opening up new avenues for growth and diversification, which should be a source of optimism for the future of FIIs in India,” said Bhowar.
“While India will continue to be the preferred market for FPI inflows, actual inflows may not be the highest among emerging markets due to intermittent volatility and shifts in global investor sentiment. However, the long-term outlook remains positive, providing reassurance about the stability of FII flows into India,” he said.
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