Despite May being a star performer so far this year in terms of foreign investment, Foreign Portfolio Investors (FPIs) began the first week of June on a rather weak note in the Indian stock market, pulling out a total of ₹8,749 crore from Indian equities during the week from June 2 to June 6.
However, even as data released by NSDL indicates that foreign investors were net sellers in the market during most of the week, the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) announcement of a 50 basis points rate-cut on Friday has lent a strong push to investor confidence, turning around withdrawals sharply.
Market experts believe that this aggressive rate cut of 5.5 per cent will boost India’s economic momentum and improve overall demand conditions even amid global uncertainties and cautious investor sentiment. With inflation staying within the RBI’s comfort zone and the central bank indicating a pro-growth stance, FPIs are expected to increase their investments in the coming months.
“June first week saw roller coaster in terms of FPI flows. The trend is positive as a weak US dollar is inversely correlated to EM flows. With Indian macro showing strength and expectations of the 100 bps rate cuts providing a further boost to economic momentum and aggregate demand, FPIs will rank India as a top investment destination. Valuations are quoted as a constraint but we see the growth potential overriding these concerns eventually” said Ajay Bagga, a banking and market expert.
Although high stock market valuations remain a concern, experts say that India’s strong growth prospects may help overcome this challenge.
The net foreign portfolio investment (FPI) inflows in May stood at ₹19,860 crore, although previous months’ data also showed that FPIs had sold stocks worth ₹3,973 crore in March. In January and February, they had sold equities worth ₹78,027 crore and ₹34,574 crore, respectively.
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