Foreign Portfolio Investors (FPIs) have set a positive tone for December, marking a significant reversal from their selling streak in November. The shift is attributed to various factors, including a decline in US treasury yields and a softer dollar. As FPIs emerged as net buyers in the Indian stock market, substantial inflows were witnessed across various segments, totalling ₹30,852 crores as of December 8.
November Reversal and MSCI EM Index Rebalancing
After being net sellers in August, September, and October, FPIs reversed the trend in November, with a notable turnaround on November 15 and 16. According to NSDL data, FPIs sold stocks worth ₹83,422 crore through exchanges during August-October. The actual inflows in November, particularly into Indian equities, stood at ₹9,001 crore. Analysts emphasize that the MSCI EM Index rebalancing partly influenced the inflows.
Key Factors Influencing FPI Activity
Several factors contributed to the trend reversal by FPIs in November and December. The Indian economy’s robust growth of 7.6% in the July-September quarter for fiscal 2023-24 played a pivotal role. Following the BJP’s victory in the state assembly elections in Madhya Pradesh, Rajasthan, and Chhattisgarh on December 13, there was a positive sentiment due to political stability. Market analysts believe a stable political environment can enhance investor confidence and drive the market higher.
Global Economic Conditions and US Federal Reserve Policy
The correction in US bond yields, triggered by a dovish commentary from Fed Chair Jerome Powell on November 1, also contributed to the positive trend. Powell’s statement, indicating the potential end of the rate-hiking cycle despite elevated inflation, led to a sharp correction in US bond yields. Markets now anticipate that the Fed is done with rate hikes and may even consider rate cuts in 2024 if the declining trend in US inflation persists.
Future Outlook and Continued FPI Inflows
The overall outlook suggests that FPI inflows into Indian markets will continue. Analysts predict sustained FPI interest in leading banks, reversing their earlier selling stance. Large-cap segments, including IT, telecom, automobiles, and capital goods, are witnessing increased FPI buying. The combination of a stable political environment, strong economic growth, cooling inflation, declining US bond yields, and the correction in Brent crude oil prices positions India favourably for continued FPI inflows.
Summary
The positive momentum in Indian markets, driven by FPIs, reflects a confluence of domestic and global factors. As investors remain optimistic about India’s economic prospects and anticipate a supportive policy environment from the US Federal Reserve, the outlook for FPI inflows into the Indian market remains positive. However, monitoring global economic conditions and policy developments is essential for a comprehensive understanding of future market dynamics.
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