FPI inflows into equity markets till May 2019 is the best in six years

Foreign portfolio investor (FPI) flows to the equity market till May 2019 have been the best in the past six years. Till May 2019, FPIs have pumped in nearly $11 billion on expectation of more business-friendly measures and continuity in ongoing policies post the outcome of the general elections.

And their bet proved correct with the Narendra Modi – led National Democratic Alliance (NDA) winning the 2019 general election with a thumping majority. FPIs remained net buyers for the fourth straight month in May.

In the first five months (January – May) of the current calendar year 2019 (CY19), FPIs have invested a net of Rs 76,051 crore ($ 10.9 billion) into the Indian equities. During the same period of CY18, they were net sellers of Rs 1,599 crore. On Monday, June 3, 2019, FPIs turned net buyers of Rs 994 crore, taking their total net investments in equities to Rs 77,045 crore for CY19, as per data available with NSDL.

Mutual funds, on the other hand, have been cautious and have mostly been fence-sitters. On a YTD basis, their investment in equities totals Rs 3,027 crore, as compared to Rs 59,372 crore in the corresponding period in 2018.

The strong FPI inflow has taken the benchmark indices to their respective all-time high with the S&P BSE Sensex closing above the 40,000 mark for the first-time ever on Monday. Thus far in CY19, the S&P BSE Sensex and Nifty 50 index have rallied 12 per cent and 11 per cent, respectively.

“Market discourse was dominated by politics for the larger part of H1CY19, with apprehensions around potential fractured verdict. With the return of Mr Modi as Prime Minister with a bigger majority for the Bharatiya Janata Party (BJP) and near two-thirds majority for the NDA, those worries are more than adequately addressed. From market’s perspective, the focus should now shift to fundamentals and the economy,” said analysts at Motilal Oswal Securities in a recent report.

Though India will remain on foreign investor’s radar, the pace of flows seen over the last few months going ahead may slow, analysts say. Foreign investors, according to them, will now wait-and-watch how the economy takes shape in the backdrop of doubts over monsoon, interest rate trajectory and other global events such as the US – China trade war.

“FPIs have invested at a scorching pace since the past few months. It is in the anticipation of policy reforms they have come in a big way. I think they will wait for the Budget announcements and other policy measures before the flow to India resumes in a big way. That said, the market valuation, too, is also a cause for concern,” explains U R Bhat, managing director at Dalton Capital.

A silver lining amid this is the fall in oil prices over the past few weeks. In the midst of the global trade war, crude prices have seen a significant fall (down by over $10/barrel) and global interest rates have almost crashed (US 10-yr yields down by 60 basis points in last three months). Both these augur well for India on the external / fiscal / monetary front, analysts say. The backdrop is well set for the government to capitalise on these trends and drive the growth outlook higher.

Most foreign brokerages, too, remain bullish on Indian equities and have revised their targets for the S&P BSE Sensex / Nifty50 post the general election outcome. Morgan Stanley, for instance, expects the S&P BSE Sensex to hit 45,000 by June 2020 as their base case – up 12.5 per cent from the current levels. Their bull-case level for the index is 50,000 by June 2020. BNP Paribas, too, sees the S&P BSE Sensex at 42,000 by December 2019-end.

	Net investment in Rs crore
Year	FPIs	Mutual fund
2019	76,051	3,027
2018	-1,599	59,372
2017	49,737	32,070
2016	15,454	9,648
2015	42,425	22,550
2014	45,804	-10,343
2013	83,205	-12,604
Between January-May 2019
Source: NSDL