After a six-month selling spree, foreign investors have turned net buyers in April so far by infusing Rs 7,707 crore in Indian equities as a correction in markets provided them with a good buying opportunity.
Himanshu Srivastava, Associate Director - Manager Research, Morningstar India, said it would still be slightly premature to call it a change in trend concerning FPI flows. Hence, it will be prudent to watch how the scenario unfolds over the next few weeks or months to get more clarity.
According to the latest data with the depositories, foreign portfolio investors (FPIs) have made a net investment of Rs 7,707 crore in Indian equities during April 1-8.
Srivastava said the inflow indicates that maybe foreign investors are almost done with the recalibration exercise of their portfolios owing to the current scenario. Also, he added that the recent correction in the equity markets had opened investment opportunities, which FPIs would have sought as a good entry point.
However, they were net sellers during the last two trading sessions, suggesting that there is still a lack of certainty on the direction of FPI flows.
The latest inflow comes following massive net outflows of Rs 1.48 lakh crore from equities in the last six months, from October 2021 to March 2022.
These were mainly on the back of anticipation of a rate hike by the US Federal Reserve and later due to the deteriorating geopolitical environment following Russia's invasion of Ukraine.
Apart from equities, FPIs put in Rs 1,403 crore in the debt markets during the period under review after pulling out a net Rs 8,705 crore in the last two months (February and March).
The fund infusion could result from foreign investors parking their investments from a short-term perspective or a tactical investment. The continuity of net inflow into the segment needs to be gauged over a period to call it a change in trend, Srivastava noted.
Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities, said FPIs flows are expected to remain volatile in the near term given the headwinds in terms of elevated crude prices and inflation, among others.
Upside AI founder Atanuu Agarrwal said inflation is at multi-decade highs in the US and Europe and consistently above RBI's tolerance limit here at home.
Recently, minutes from the Fed meeting in March show that there is broad support to use a combination of interest rate increases and decreasing the size of the Fed's balance sheet to reign in inflation. So, if that happens, he said the FPI flow could continue to be negative.
In the entire FY 22, FPIs withdrew a net Rs 1.4 lakh crore from equities. Despite the pullout, the NSE Nifty rose 19 per cent in the same period on the back of support from domestic institutions and retail investors.
However, if this trend continues, there might be limited capacity to absorb further liquidation at current price levels, Mr Agarrwal added.