FPIs stay bullish on Indian equities; pump $6.3 bn in Sept quarter

Overseas investors have pumped in USD 6.3 billion in Indian equity markets in three months ended September on attractive valuations, opening-up of the economy and resumption in business activities, says a Morningstar report.

This comes following a net inflow of USD 3.9 billion in June quarter and a net withdrawal of USD 6.38 billion in March quarter.

Apart from inflow, the value of FPI investments in Indian equities swelled further during the quarter under review largely on the back of robust net inflows, coupled with a strong performance of the Indian equity markets.

As of the three months ended September, the value of FPI investments in Indian equities stood at USD 450 billion, which is considerably higher than the USD 344 billion recorded in previous quarter, a spike of almost 31 per cent.

Further, Foreign Portfolio Investors' (FPI) contribution to Indian equity market capitalisation also shot up to 21.4 per cent during the period under review from 18.7 per cent for the June quarter.

Interestingly, this is the highest recorded level of contribution by FPIsin the Indian equity markets, with the previous highest being 20.5 per cent in March 2015.

"For the quarter ended September 2020, FPIs were net buyers to the tune of USD 6.3 billion, which was significantly higher than the net inflow of USD 3.9 billion in theprevious quarter," according to a report by Morningstar.

Overseas investors started the Septemberquarter on a rather cautious note as the spike in COVID-19 cases and implementation of fresh lockdowns by several states in July created an environment of uncertainty and fanned concerns that growth in the domestic economy could be delayed further, the report pointed out.

This prompted FPIs to stay on the sidelines and adopt a rather measured approach with respect to investing in Indian equities.

However, the flows picked up as the quarter progressed, with excess liquidity in the global markets and low interest ratesresulted in foreign money to flow into emerging markets like India. The sentiments also improved with positive results from vaccine trials.

"Also, the prospects of another round of the US and the EU stimulus boosted the risk appetite among investors toward riskier assets," the report noted.

On the domestic front, though concerns around rising cases of COVID-19 remained, an improving recovery rate was a silver lining.

"In addition, the opening-up of the economy, resumption in business activities, and attractive valuation of Indian equities attracted foreign investments," as per the report.

The month of August was one of the best with respect to foreign flows with FPIs pumping in net assets worth USD 6.2 billion, which is the highest monthly net inflow after October 2010, when they invested net assets were worth USD 6.4 billion in Indian equities.

The scenario, however, reversed in September as they turned net sellers in Indian equities to USD 1.1 billion. The outflow was triggered largely on concerns over the country's economic growth and the escalating border tensions between India and China.

According to the report, the impact of the nationwide lockdown was evident in India's gross domestic product, which contracted by a huge 23 per centfor the quarter ended June 2020, therefore denting sentiments.

Foreign investors also stayed on the sidelines as COVID-19 cases in Europe and other countries renewed fears of a possibility of new lockdowns, thus dashing hopes of swift economic recovery.

However, opening of domestic economy, resumption of business activities, better-than-expected quarterly results and afall in the case counts in India, strongly brought back foreign investors into Indian equities in October and November.

From October till November 11, 2020, FPIs have invested net assets of around USD 3.88 billion.

Going ahead, the report said availability of excess liquidity in the global markets and any positive developments on the vaccine would ensure flow of FPIs investments into Indian equities.