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After following a strategy of buying domestic shares from the primary market and selling through stock exchanges for the past few weeks, foreign portfolio investors (FPIs) have reversed their approach, on the expectation of an interest rate cut by the US Federal Reserve.
Foreign portfolio investors were buyers of equity in the cash market on all days of the week ended September 13. In the current month (September 1-September 13), foreign investors purchased Rs 27,862 crore worth of domestic equities.
“It is significant to note that unlike in previous weeks when FIIs were buyers through the primary market, this week (September 9-September 13), they were buyers through the exchanges having bought equity for Rs 22,707 crore,” said V K Vijayakumar, chief investment strategist, Geojit Financial Services.
Prior to this, FPIs were majorly buying through the “primary market and others category”, and were sellers in the stock exchanges on concerns over higher valuation of the domestic market.
According to Vijayakumar, one of the reasons for the change in FPI strategy from selling to buying through stock exchanges is because of expectations that the US Federal Reserve will start cutting rates from this month onwards pushing the US yields down. It will facilitate fund flows from the US to emerging markets.
Market participants expect the US Federal Reserve to deliver a 25 bps rate cut in its monetary policy scheduled for September 17-18, following lower-than-expected US inflation data for August. The Consumer Price Index rose 2.5 per cent for the 12 months ending August, the smallest 12-month increase since February 2021.
The focus of the global markets have now shifted to the US Federal Reserve’s decision on interest rates in its upcoming FOMC meeting. Expectations of a rate cut is high and that is likely to facilitate fund flows from the US to emerging markets. FPIs are now understood to be taking a stance on this. Also, experts say that extreme resilience of the Indian markets pushes FPIs to not miss out on the momentum.
Vijayakumar also attributes resilience of the domestic market as another reason for FPIs buying through exchanges.
“The Indian market is extremely resilient with strong momentum and missing out on the Indian market would be a bad strategy for FIIs,” he said, adding that high valuations in India, however, continue to be a concern.
FPIs are encashing at the right time to tab the Indian market amidst positive market sentiments, political stability, contributing to the rally, said Manoj Purohit, Partner and leader, FS Tax, Tax and Regulatory Services, BDO India, a tax, accounting and advisory firm.
This incursion not only mirrors the growing attractiveness of Indian equities but also emphasises the confidence foreign participants have shown in India’s financial markets historically as well during geopolitical crises and other macro factors, Purohit said.
