Genre : Financial Markets
Foreign Portfolio Investors (FPIs) have continued their buying spree, infusing nearly Rs 4,800 crore into the Indian equity markets in the first week of January, as a sign of faith in the country’s strong economic fundamentals. FPIs have also demonstrated interest in the debt market at the same time, contributing an extra Rs 4,000 crore during this time.
Strong Start to 2024: FPIs Pour in Investments
Depositories’ data shows that FPIs continued their bullish position in the first few days of January, with a net investment of Rs 4,773 crore in Indian equities. This continues a steady trend of rising FPI inflows, which included large investments of Rs 66,134 crore in December and Rs 9,000 crore in November. This persistent interest from foreign investors appears to be largely driven by the positive sentiment surrounding India’s economic landscape.
Anticipating Prolonged Decline in US Interest Rates
The Chief Investment Strategist at Geojit Financial Services, V K Vijayakumar, attributes the increased FPI activity to the expectation of a protracted decline in US interest rates through 2024. It is expected that FPIs will increase their purchases even more in the first few months of the New Year in preparation for the general elections. Additionally, Vijayakumar projects that in 2024, FPI inflows into the debt market will accelerate.
Decoding FPI Inflows: December Surge and Political Stability
There are a number of reasons for the significant foreign portfolio inflows that occurred in December, totaling Rs 66,134 crore, and the ensuing investments in January. According to reports, both domestic and foreign investors were holding out for clues about interest rates from the US Federal Reserve meeting minutes that were made public the week before. FPI confidence has been greatly bolstered by the positive economic indicators in India, which include robust GDP growth figures in Q2FY24, strong corporate earnings, and a robust banking sector.
Secular Bull Run and Political Stability
The founder of Fidel Folio and Smallcase Manager Kislay Upadhyay highlights how political stability in India helps to bolster the confidence of FPIs. Political stability brought about by the results of the state elections in December is what Upadhyay refers to as the “perfect recipe for a secular bull-run” that will see steady inflows of foreign direct investment. Ahead of two key occasions in the coming year, the general elections in India and the anticipated reduction in Federal Reserve interest rates, investors seem keen to take a strategic position.
Looking Back at 2023: FPI Flows in Equities and Debt Markets
The total FPI flows for 2023 demonstrate confidence and significant investment. FPIs contributed Rs 68,663 crore to the debt markets and Rs 1.71 lakh crore to the equity markets. The total amount of money invested in the Indian capital market through these investments was a noteworthy Rs 2.4 lakh crore. This encouraging pattern contrasts with the events of 2022, when sharp increases in global central bank interest rates caused the worst net outflow of Rs 1.21 lakh crore.
Economic Outlook and Considerations for 2024
India’s economy is currently doing well, and encouraging signals from international markets are pointing to a successful year. India’s corporate performance, political stability, and economic growth are attracting the attention of foreign and domestic investors as potential drivers of a long-term bull market. Foreign investors’ optimism is further fueled by the expectation of Fed rate cuts.
With strong foreign portfolio inflows during the first week of January, India’s capital markets are starting the new year strongly. An optimistic outlook for 2024 is being shaped by the convergence of global factors, political stability, and economic fundamentals. While challenges may arise, the current trend suggests that India’s attractiveness as an investment destination remains strong, and the buoyant FPI activity is indicative of sustained confidence in the country’s economic trajectory. As the year progresses, stakeholders will keenly observe how these factors continue to influence market dynamics.