Foreign Institutional Investors Become Bullish On India As EM Peers See A Flight

Foreign institutional investors (FIIs), who lacked confidence in the Indian markets earlier this year, appear to be regaining it now. In 14 sessions between April 26 and May 16, FIIs invested Rs 22,585 crore in Indian equities on a net basis through stock exchanges. According to data from CDSL, the total investment, including primary market figures, was Rs 33,714 crore ($4.12 billion). This 14-day period is comparable to the 14 days last year, between July 28 and August 19, 2022, when revenue totaled Rs 52,464 crore ($6.6 billion).

The fact that this is the longest streak of FII inflows in two and a half years—the previous one being a 19-day streak from November 26 to December 23, 2020, during which Rs 59,645 crore ($8.1 billion) was infuse

d—makes this achievement particularly noteworthy. According to preliminary data from the exchanges, FIIs were net buyers on Wednesday to the tune of Rs 149.33 crore (CDSL reports figures with a lag of one day).

According to analysts, the unfavourable valuations and the turmoil in Adani Group stocks following the Hindenburg report in the first half of the year scared away foreign investors. They became wary of investing in Indian stocks as a result.

This is demonstrated by the fact that FIIs have sold securities worth a net Rs 28,476 crore via the exchange route so far this year. However, there has been a net inflow of ‘17,315 crore ($2.11 billion), including primary market activity.

“With the economy in good shape, the domestic-focused companies are reaping the benefits,” said UR Bhat, co-founder and director of Alphaniti Fintech. “This includes capital goods, banking, and auto, a theme that has interested foreign investors.”

Added Deepak Jasani, head of retail research, HDFC Securities: “FIIs were underweight on India, fearing a heavy correction that did not happen. Hence, they are now coming back to their earlier positions. The pause in the interest rate cycle, which will likely to continue, thanks to the encouraging CPI numbers, is another boost.”

He pointed out that many fence-sitters also turned bullish on India, thanks to the healthy results by large-cap firms, which were more or less in line with expectations. According to Morningstar, the decline in Chinese markets, following the zero-Covid policy and ensuing lockdowns made them a “more appealing” prospect from a value standpoint. This prompted FIIs to shift their focus from economies with relatively high valuations, like India, to China.

A comparison with other Asian EM peers, however, shows that India has stood out. Data shows that during the same 14-day period, Taiwan has seen a flight of $1.8 billion, Thailand $249 million, Indonesia $20 million, Malaysia $85 million, and The Philippines $49 million. Only South Korea with $89 million of inflows has been in positive territory.

This is despite South Korea and Taiwan having raked in $6.44 billion and $4.35 billion YTD, and Indonesia $1.06 billion. Thailand has seen over $2 billion in outflows, while Malaysia and The Philippines have lost over $500 million YTD.
“Given a more stable economy in relative terms, better macro condition, and prospects of higher economic growth, FIIs chose to look beyond various challenges and invest in Indian markets, in expectation of potential better returns,” said the Morningstar report.

The easing of concerns about the banking crisis abroad, rising expectations that the Fed may go slow on rate hikes, and consolidation in Indian markets leading to rationalisation in valuations, has brought FIIs back, it added.

China had, however, seen over $48 billion in inflows until the March quarter, while Japan saw the influx of $16.7 billion up to May 5 (China and Japan don’t report numbers on a daily basis).

“India has both political and fiscal stability, and manages its issues well, be it in any sector. We have also seen decisive mandates in elections, and good coordination between the Centre and states. Not only that, Indian firms have good corporate governance standards, which reflects in their valuations,” said Bhat.

He also emphasised on the fact that most of India’s EM peers are large exporters to developed markets, while India’s percentage of exports is lower. Agrees Jasani, who said that with many peers having elections this year like Sri Lanka, Thailand and Turkey, FIIs now see India as the more attractive option.

Between April 26 and May 16, both benchmark indices gained 3%, with the Sensex jumping 1,800 points and the Nifty by 517.

(With Input Feed)