Return of FIIs: Valuations attract foreign capital after 6-month hiatus

Attractive valuations, as well as a downward correction in commodity prices, have triggered an inflow of FII funds into India's equity market.

The market has seen an inflow of over Rs 7,000 crore (provisional data) worth of investments since late March till date. This comes after foreign investors sold over Rs 40,000 crore in Indian equities market during the whole of March 2022.

March was the sixth straight month when foreign portfolio investors pulled out Rs 41,123 crore from the Indian equity segment, National Securities Depository data had revealed.

The recent sell-off was triggered by policy rate hike by the US Federal Reserve which made the country more attractive for investments. Besides, inflationary pressure led by rising commodity prices including crude oil was also a hurdle for the investors.

FPIs repportedly pulled out a net Rs 1.48 lakh crore between October 2021 and March 2022.

During January-March 2022, FPIs withdrew around Rs 1.1 lakh crore from the equity segment, data showed.

"Turnaround in global markets, cooling off in hostilities between Russia and Ukraine, attractive levels in individual stocks and correction in crude oil prices are some of the factors that helped reverse the selling trend," said Deepak Jasani, Head of Retail Research, HDFC Securities.

"FPIs individually are buying stocks that they have traditionally liked. As a group, these include IT, banks, metals, power, industrials amongst others."

According to Likhita Chepa, Senior Research Analyst, CapitalVia Global Research, markets have seen FIIs buying in the markets as there were many positive factors such as availability of fundamental stocks at a discount.

"We can consider this as new and sustainable trend as the geopolitical situation tends to decrease with possibility of talks between Russia and Ukraine," she said.

"Oil prices are high but have calmed down and are expected to further mellow down with the positivity in the global sentiments. This trend got triggered as a lot of fundamentally strong stocks were available at discounts."

Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services, said: "Lately, we have observed that FIIs have become net buyers. The trend has come after a time-correction in Nifty has taken place for the last 6-months. Many FIIs had earlier lowered their overweight position on India. This has given them headroom to restart investing into stocks where they see a potential return.

"The trend is positive for now especially given the fact that FIIs have factored in a 25 basis points rise in US Fed rates and on hopes of healthy quarterly results from India Inc."

--IANS

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