FPIs inject Rs 27,856 cr in equities in Sept on US rate cut expectations

Foreign investors have infused Rs 27,856 crore in domestic equities in the first fortnight this month, owing to the resilience of the Indian market and growing optimism around the potential interest rate cut in the US.

Foreign Portfolio Investors (FPIs) have been consistently buying equities since June. Before that, they pulled out Rs 34,252 crore in April-May.

With the focus shifting to the US Federal Reserve's decision on interest rates in its upcoming FOMC meeting next week, its outcome will likely play a pivotal role in shaping the trajectory of future FPIs investments in Indian equities, Himanshu Srivastava, Associate Director- Manager Research, Morningstar Investment Research India, said.

According to the data with the depositories, FPIs put in a net investment of Rs 27,856 crore into equities this month (till September 13).

With this, FPIs' investment in equities reached Rs 70,737 crore so far this year.

VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, has attributed two major reasons for FPIs' strong buying. First, there is a consensus now that the US Fed will start cutting rates from this month onwards, pushing the US yields down.

Recent data showing US inflation cooling for the fifth consecutive month, hitting a 43-month low of 2.5 per cent year-on-year in August, has strengthened expectations that the US Federal Reserve may proceed with a rate cut at its upcoming policy meeting. This will facilitate fund flows from the US to emerging markets.

Secondly, the Indian market is extremely resilient with strong momentum and missing out on the Indian market would be a bad strategy for FPIs, he added.

High valuations in India, however, continue to be a concern.

"The robust inflows are due to underlying factors such as global confidence in India's economic outlook and the government's commitment to drive a long-term growth story. FPIs are encashing at the right time to tab the Indian market amidst positive market sentiments, political stability, contributing to the rally," Manoj Purohit, Partner and leader, FS Tax, Tax and Regulatory Services, BDO India, said.

Also, a series of regulatory reforms aimed at streamlining the process for FPI investments has further uplifted investor sentiment.

Apart from equities, FPIs invested Rs 7,525 crore in debt through the voluntary retention route in the first two weeks of September and Rs 14,805 crore in government debt securities designated under the Fully Accessible Route (FAR).