Continuing their buying spree in the March quarter, foreign investors pumped in USD 2.2 billion in the Indian equity market on hopes of better corporate earnings, promising economic data and buoyant global markets.
The net inflow by foreign portfolio investors (FPIs) was USD 2.6 billion during October-December quarter, as per Morningstar Investment Adviser India.
On month-on-month basis, FPIs were net buyers in January and March — USD 2.16 billion and USD 1.79 billion respectively. They had however sold equities worth USD 1.77 billion in February.
Despite net inflows, decline in markets dented the value of FPI investments in equities as it ended the January-March quarter this year at USD 414 billion from USD 442 billion registered in the the preceding three months.
However, FPIs' contribution to the equity market capitalisation remained unchanged from the previous quarter at 19 per cent.
Overall, FPIs started the quarter with a positive outlook on Indian markets.
According to Himanshu Srivastava, senior analyst manager research, at Morningstar, markets were performing well globally and this led to a buildup of positive sentiments and an increase in investors' risk appetite. This resulted in huge net inflows from overseas investors into emerging markets like India.
On the domestic front, better economic numbers and positive third-quarter results for many companies in fiscal-year 2017-18 drew FPI attention. Additionally, IMF's projection that India would retain the fastest-growing economy tag in 2018-19 also worked in its favour, he added.
However, February proved to be a damper, as a series of weak domestic and global cues led FPIs to pull their investments from the Indian markets.
With respect to home front, factors like the introduction of long-term capital gains tax in equity investments announced in the Union Budget 2018, and the unearthing of a scam involving Punjab National Bank adversely affected the sentiments.
Additionally, a global sell-off was triggered after fears of creeping inflation and higher borrowing costs compounded volatility in the markets across the globe. It caused FPIs to withdraw money from emerging markets like India, which are riskier than developed markets and more susceptible to global risks, Srivastava noted.
However, FPIs renewed interest in Indian markets after a forgettable February could be largely attributed to falling markets and a slight depreciation in the rupee in February and March, which made Indian equities comparatively an attractive buy for foreign investors.