Foreign institutional investors (FIIs) made a strong comeback in September, buying $3.3 billion worth of Indian equities, a substantial leap from the $873 million invested in August. This surge in investments signals a renewed interest in the Indian share market, with both secondary markets and initial public offerings (IPOs) attracting foreign funds. FIIs invested $2.71 billion in secondary markets and $614.23 million into IPOs, according to data from NSDL.
The return of FIIs comes after a lull in August, during which market volatility and global uncertainties kept foreign investors on the sidelines. The significant inflow in September reflects not just improved sentiment towards Indian equities but also a strategic shift in share market investment, especially amid political stability and anticipation of a US Federal Reserve rate cut.
IPOs drive FII buying, but the focus remains on secondary markets
Despite 10 IPOs worth ₹11,248 crore in September, FIIs focused primarily on secondary markets, purchasing large-cap stocks in sectors like banking and engineering. Kranthi Bathini, Equity Strategist at WealthMills Securities, attributed this trend to large block deals and the “buy on dips” strategy FIIs adopted amidst ongoing market volatility. Promoter and private equity block deals provided FIIs with an attractive entry point into the Indian equity market.
Bathini noted that while small IPOs dominated September’s offerings, except for Bajaj Housing Finance, FIIs preferred to invest in secondary markets where opportunities in larger companies, particularly in sectors like banking and engineering, provided greater stability. This buying trend marks a shift from the early months of 2024 when FIIs were net sellers in Indian equities.
FII buying boosted by political stability and Fed expectations
The earlier months of 2024, specifically January to May, saw FIIs offload around $2.77 billion in Indian equities, driven by concerns over high valuations and political uncertainty ahead of elections. However, with the political landscape now settled and a positive earnings season for the June quarter, FIIs have returned in full force.
Moreover, market expectations of a potential US Federal Reserve rate cut have further fuelled the rally in Indian equities. Analysts believe that the anticipated rate cut, which could benefit emerging markets like India, has led FIIs to change their stance, spurring this renewed buying activity. Deepak Jasani, Senior VP - Head Retail Research at HDFC Securities, suggested that once the US Fed announces its rate decision, global markets, including India, might experience a temporary peak.
Indian market stability draws foreign investors
Rajesh Palviya, an analyst at Axis Securities, highlighted that the stable environment in India’s financial markets, combined with steady corporate earnings, makes Indian equities more attractive to FIIs compared to other global markets. Sectors like IT, pharmaceuticals, and automobiles have emerged as favourites for foreign investors, especially due to their alignment with global trends and consistent performance. These sectors, which have long been FII favourites, continue to see sustained interest.
As markets edge towards all-time highs, analysts expect this upward trajectory to continue. While some volatility and sector rotation are likely, the Indian market’s resilience and favourable macroeconomic conditions have positioned it as a top destination for FII investments. Analysts project the Nifty to move between 25,600 and 25,800, with support around 25,000, as foreign investors maintain their focus on sectors like FMCG, pharmaceuticals, and IT.
This renewed momentum in FII inflows demonstrates confidence in India’s economy and equity markets, underlining the potential for further growth in share market investment.
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