Foreign investors have remained net buyers of Indian equities in all but the Diwali trading session since the start of November at a time the benchmarks erased their pandemic-triggered losses and scaled new peaks.
Overseas investors have poured in Rs 1.01 lakh crore into the domestic equity markets in 33 trading sessions starting Nov. 2, according to data compiled from the National Stock Exchange.
“The FII flows are a result of a combination of factors. The biggest factor was the increase in India’s weight in the MSCI indices. Another factor is the FTSE rebalancing, which will fetch another $800 million this month,” Gurmeet Chadha, co-founder and chief executive officer of Complete Circle Consultants, told BloombergQuint over the phone.
The recovery in India’s economy with minimum fiscal support, according to him, is another possible factor for the sustained foreign funds flow. “The heavy-lifting has been done by the Reserve Bank of India in terms of the monetary and fiscal support. On the other hand, the government spending has gone down.”
While Chadha expects the funds flow to moderate in the near term, he remains optimistic that they will continue over the next six to 12 months. “Given the kind of liquidity environment that we are in, I think the flows will be structurally good.”
Domestic investors, however, have remained net sellers since the start of November, having sold more than Rs 75,000 crore over the last 33 trading sessions.
Chadha attributed most of the pressure to EPFO selling to pay the annual interest, mutual fund and insurance redemptions. “[But] I believe the bulk of the selling is behind us,” he said. Chadha expects the markets to undergo some time and price correction as FII flows will taper towards the end of the year.
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