FPI inflows hit 11-month high in July, lift benchmarks to fresh highs

Foreign portfolio investors (FPIs) bought Indian shares worth Rs 46,618 crore ($5.63 billion) on a net basis in July, data from the National Securities Depository Ltd (NSDL) showed on Friday.

This is the highest monthly FPI inflows since August 2022.

Sustained FPI inflows have powered the uptick in the blue-chip Nifty 50 and S&P BSE Sensex, driving the benchmarks to record highs. The Nifty 50 rose 2.94 per cent in July. 

Between March and July, FPIs have been net buyers of Indian equities in each of the five months, purchasing shares worth Rs 1.5 trillion and triggering a 14.15 per cent rise in Nifty 50 index.

"The rally to record highs in July was predominantly driven by foreign inflows," said Samrat Dasgupta, CEO, Esquire Capital Investment Advisors.

"If you see local mutual funds, there have been substantial profit bookings over the last few months."

Analysts attributed strong macroeconomic fundamentals, steady earnings as well as concerns over recovery in China as key drivers of foreign inflows into India.

Earlier in the week, global brokerage Morgan Stanley upgraded its view on India to "overweight" from "equal weight" and termed it the most-preferred among emerging markets (EMs) on macro-stability and positive earnings outlook.

What FPIs bought in July

FPIs purchased equities worth Rs 115,14 crore in the financial services sector in July, after buying Rs 192,29 crore worth of shares in June. FPIs were also net buyers in the sector in April and May.

"Earnings growth in banks remained steady and asset quality continued to improve, while non-banking financial companies (NBFCs) demonstrated healthy disbursement momentum," according to analysts at Motilal Oswal Financial Services in their interim review of June quarter numbers.

The revival in FPI interest in financials follows outflows of Rs 29,993 crore of shares in the sector in fiscal 2023.