Foreign Investors Pour Rs 57,359 Crore into Indian Equities in September: A Nine-Month High

September 2024 witnessed a substantial investment of Rs 57,359 crore by foreign investors in Indian equities, marking the highest inflow in nine months. This surge has pushed total foreign portfolio investor (FPI) equity investments past the significant Rs 1 lakh crore milestone for the year, demonstrating India’s increasing appeal to international markets.

 

Factors Driving Foreign Investment Surge

Several favorable factors largely drive the influx of foreign capital. The most prominent is the US Federal Reserve’s decision to initiate a rate-cut cycle, which has provided enhanced liquidity and spurred foreign interest in high-growth markets like India. On September 18, the US Fed cut rates by 50 basis points, creating an attractive interest rate differential that made Indian markets more appealing to global investors.

Additionally, India’s growing weightage in global indices, strong economic prospects, and a slew of successful Initial Public Offerings (IPOs) have further enticed foreign investors. These factors have helped sustain consistent FPI investments since June, despite previous withdrawals totaling Rs 34,252 crore in April and May. Notably, FPIs remained net buyers for most of 2024, with only a few exceptions in January, April, and May.

 

The Role of India’s Economic Fundamentals

India’s robust economic fundamentals have played a key role in driving foreign investor confidence. According to Robin Arya, CEO of GoalFi, future FPI inflows are likely to remain strong, supported by easing global interest rates and India’s stable economic outlook. However, Arya also highlighted the importance of the Reserve Bank of India’s (RBI) actions in managing inflation and maintaining liquidity to sustain this positive momentum.

Manoj Purohit of BDO India echoed this sentiment, emphasizing that the favorable interest rate differential will likely continue to attract foreign investment into Indian equities. Furthermore, healthy valuations in the market and an increase in large IPOs have created a fertile environment for foreign investors, as noted by Bharat Gala of Ventura Securities.

 

FPI Participation in Debt Markets

In addition to equity markets, FPIs have shown increasing interest in Indian debt markets, particularly through the Voluntary Retention Route (VRR) and the Fully Accessible Route (FRR). In September alone, FPIs invested Rs 8,543 crore via the VRR and Rs 22,023 crore through the FRR, demonstrating confidence in India’s debt market.

The declining US bond yields have made Indian government securities, particularly those under the FRR, an attractive option for foreign investors, offering higher yields and liquidity. The RBI’s supportive stance on maintaining stable yields and fostering an investor-friendly debt market has also encouraged ongoing foreign participation through these routes.

 

Conclusion: Strong Prospects for Continued FPI Inflows

With declining US bond yields, favorable interest rate differentials, and India’s strong economic fundamentals, the outlook for continued foreign investment in Indian equities remains positive. The RBI’s ongoing efforts to manage inflation and maintain liquidity will be crucial in sustaining this momentum, and experts expect FPI inflows to remain strong in the coming months.

As India continues to present attractive opportunities for foreign investors, especially in both equity and debt markets, the country is well-positioned to capitalize on these inflows and drive economic growth further into 2024.