The recent shift in foreign investor behavior is a captivating turn of events, especially for those watching India's economic landscape. Foreign investors are now buying, not selling, in the Indian market, and this change has sparked curiosity.
In October, the tide of foreign portfolio investor (FPI) selling in India noticeably receded, and analysts have pinpointed two key reasons for this. Firstly, the valuation gap between India and other markets has narrowed significantly. This is due to a combination of factors: a surge in other markets and a period of consolidation in the Indian market. Secondly, and perhaps more crucially, market experts have revised their growth and earnings forecasts for India, painting a rosier picture. Dr. VK Vijayakumar, a prominent investment strategist, attributes this to GST cuts and a low-interest environment, which are expected to fuel India Inc's earnings in FY27.
This optimism was evident in the cash market, where foreign investors became net buyers in the final four trading sessions of the week ending October 10, purchasing a substantial Rs 3,289 crore worth of assets.
But here's where it gets controversial: the global market sentiment is a double-edged sword. While the easing of geopolitical tensions between Israel and Hamas, and the potential for an India-US trade deal, have boosted confidence, the US-China trade war has reignited. US President Donald Trump's threat of a 100% tariff on Chinese imports and restrictions on US exports to China have sent shockwaves through global markets.
The future of FPI flows is now a hot topic. Analysts suggest that the trajectory of this renewed trade war will be pivotal in determining FPI behavior. Siddhartha Khemka, a leading research head, noted that the Nifty50 index rose by 104 points to 25,285 on the last Friday of the month, a move attributed to improved global sentiment and the aforementioned geopolitical developments. Khemka also highlighted the impact of renewed FPI buying and the strategic collaborations between India and the UK in various sectors.
Looking ahead, as the valuation differential continues to shrink and Indian earnings show promise for FY27, foreign portfolio investors are expected to further reduce their selling activities. This prediction comes after a sustained period of FPI selling in September, where the sell figure through exchanges reached Rs 27,163 crore. Interestingly, they maintained their long-term strategy of buying through the primary market, investing Rs 3,278 crore in equity during the same month.
As a final note, investors are eagerly awaiting India's retail inflation data for September, due on Monday, which could provide further insights into the market's trajectory. What's your take on this market optimism and the factors influencing foreign investor decisions?
