Despite sell-off, more foreign portfolio investors set to enter Indian market

Once these applications are cleared, they are expected to start investing in Indian markets. “Despite the ongoing sell-off by funds since last month, this month saw an unprecedented number of applications of about 40-50 new FPI registrations which are eyeing to enter the Indian market,” said Manoj Purohit, partner & leader, Financial Services Tax, Tax & Regulatory Services, BDO India.

The number of FPIs registered with the Sebi was 11,219 as of March 2024. Only 138 FPIs had registered with the Sebi in full fiscal 2023-24. This means an average of 12-13 FPI registrations every month.

“All thanks to Sebi’s recent relaxation to NRIs, permitting them to participate up to 100 per cent and announcing measures for ease of entry and operations in India,” he said. Though FPI community had been very cautious about Indian markets in the last couple of months, shifting their allocation to other countries like China, India still stands on better footing as compared to other markets.

“The major factors attributable are political certainty, long term growth, better yields, substantial capex spending by the government and last but not the least, the central bank’s vigilant approach while announcing rate cuts to put a check on inflation,” Purohit said.

The offshore participants are optimistic that the RBI will adopt a balanced approach to ensure the cost of raising funds is under control and is made easily accessible to India Inc in the upcoming quarter’s announcement, he said.

Additionally, the outcome of the recent election results held in the US has created an optimism for the Indian market considering the strategic partnership between the two countries. This will boost the economic and mutual businesses and other foreign trade policies which will make India more lucrative for foreign investments. “We may see FPI inflows into the equity and debt segments turning green in the coming few trading cycles,” Purohit said.

After the massive FPI withdrawal of Rs 1.13 lakh crore in October, FPIs have sold equity worth Rs 19,849 crore in the cash market in November so far.

The rationale for the FPI selling is the elevated valuations in India which appear conspicuous in the context of the earnings deceleration evident in the Q2 numbers. The FPI selling trend is likely to continue in the near-term as China on Friday announced a mega stimulus package to salvage the economy. “If the Q3 results and leading indicators reflect recovery in earnings, the scenario can change with FPIs reducing selling and even turning buyers. Investors will have to wait and watch for the data,” said V K Vijayakumar, chief investment strategist, Geojit Financial Services.

Meanwhile, the hallmark of the global market trend this week has been the record setting uptrend in the US market, being driven now by the ‘Trump trade.’ Expectations of implementation of the promised corporate tax cuts and its positive impact on US corporate earnings is the fundamental logic behind this trend.