Why FPIs are suddenly pouring billions of dollars into D-Street

NEW DELHI: Foreign portfolio investors (FPIs), who ignored domestic stocks last year, are all of a sudden pumping billions of dollars into India.

Easing of liquidity conditions, relative stability in crude oil prices, hopes of earnings revival and projections of no likely political upheaval in the general elections are bringing FPIs back to India.

In last 28 sessions since February 1, FPIs have bought stocks worth over Rs 1,000 crore in 15 sessions, taking their total inflows to over Rs 30,000 crore in February-March.

This was visible in the performance of BSE Sensex, which has climbed 1,600 points since February 1, and is now a mere 1,100 points away from its all-time high of 38,989 hit in August last year.

This two-month period is turning out to be as big a period as February-March of 2017 when FPIs bought over Rs 40,000 crore worth of domestic equities in a frenzy. With global central banks turning dovish and the domestic market in the middle of pre-poll rally, these investors have upped their bets.

“It seems global liquidity is helping. FPIs are coming in hoards, buying stocks not only in largecaps but also in the broader market. If things are stable from here on, FPI money flow could continue. FPIs were not buyers for the whole of 2018, and given the underlying earnings growth, inflows may pick up during the course of the year,” said Siddhartha Khemka at Motilal Oswal.

In his 2018 Budget speech, the Finance Minister had re-introduced a 10 per cent levy on long-term capital gains exceeding Rs 1 lakh arising from transfer of listed equity shares, without allowing any indexation benefit. The year saw Rs 32,628 crore FPI outflow from equities.

FPIs have been buying heavily into banking names, NSDL data for February suggests. They bought Rs 9,154 crore worth of banking and Rs 1,172 crore worth of non-banking and financial stocks during the month and added Rs 684 crore worth of IT shares and Rs 671 crore of media stocks. Chemicals, pharma, insurance and telecom shares also were on their radar, data showed.

A large part of the FPI inflows is coming from exchange-traded funds (ETFs) — considered relatively fickle — and block transactions on the bourses, but active money has also started coming into local markets, experts told ET.

“In FY20, we could finally see the much sought-after earnings growth, which would then culminate into improvement in fundamentals and liquidity flows,” said Khemka, who expects FPI flows to continue on improvement in fundamentals.

Porinju Veliyath, MD & Portfolio Manager, Equity Intelligence India, expects this year’s foreign inflows to top Rs 1 lakh crore. FPI inflow to domestic equities earlier topped that mark for in 2010, 2012 and 2013. In 2014, total FPI flows stood at Rs 97,069 crore.

In a note to clients, Morgan Stanley said India's underperformance earlier this year was the result of a spike in oil prices and political uncertainty.

"Both these issues may have hit a peak in terms of negativity. Our global team does not expect oil to continue to rise. Events of past eight weeks on the political front – including various pre-poll alliance formations, farmer cash transfer scheme and the military action across the border – may have caused polarization for the forthcoming general elections and increased the possibility of election of a stronger government,” it said.

Fundamentals, it said, seems to be at the start of a new upcycle, even as valuations are at mid-cycle. Growth is likely moving higher, the brokerage said.