Foreign investors pumped just over Rs 51,200 crore into Indian stock markets in August, the highest inflow in 20 months, amid improving risk sentiment and stabilizing prices. oil price.
This follows a net investment of almost Rs 5,000 crore by foreign portfolio investors (REITs) in July, according to custodian data.
REITs had turned buyers for the first time in July after nine consecutive months of massive net outflows, which began in October last year. Between October 2021 and June 2022, they withdrew Rs 2.46 lakh crore from Indian stock markets.
India will also continue to attract REIT flows this month, albeit at a slower pace than in August, given continued rate hikes by the US Federal Reserve and quantitative tightening, Manish Jeloka said. , co-head of products and solutions, Sanctum Wealth.
Arpit Jain, co-chief executive of Arihant Capital Markets, said inflation, dollar prices and interest rates will dictate REIT flows.
According to data from custodians, REITs injected a net amount of Rs 51,204 crore into Indian equities in August. It was the highest investment made by overseas investors since December 2020, when they infused a net amount of Rs 62,016 crore into shares.
“Foreign investors began pumping money into emerging markets as the interest rate curve flattened and oil prices stabilized. Commodity prices fell as China’s growth and financial market took a hit,” said Vijay Singhania, president of TradeSmart.
Jain said the correction in Indian equities and falling oil and commodity prices, particularly steel and aluminum, are the main reasons REITs are buying despite a strong dollar and yields. rising bonds.
Inflation in the United States slowed from a 40-year high in June to 8.5% in July due to lower gasoline prices. In India, retail inflation based on the consumer price index decreased slightly to 6.71% in July from 7.01% recorded in June due to lower food prices.
Himanshu Srivastava, Associate Director – Manager Research, Morningstar India, said the net inflows over the past few weeks can be attributed to several factors.
While inflation continues to be at elevated levels, lately it has risen less than expected, improving sentiment. That stoked expectations that the U.S. Fed would be comparatively less aggressive than expected with its rate hike, he noted.
Therefore, it has to some extent alleviated recession fears in the United States, thereby improving investors’ risk appetite, he said.
On the home front, the correction in Indian stock markets provided investors with a good buying opportunity, he added.
Jeloka of Sanctum Wealth believes that India’s inflation situation is significantly better than that of developed economies and should be below the upper limit of the RBI’s 6% tolerance level.
REITs have taken advantage of this opportunity to select high quality companies. They are now buying stocks of financial, capital goods, consumer packaged goods and telecommunications companies, he added.
Additionally, REITs injected a net amount of Rs 3,844 crore into the debt market during the month under review.
Outside India, flows were positive in Indonesia, South Korea and Thailand, while they were negative in the Philippines and Taiwan during August.
September began with high volatility in REIT flows. On the first day of the month, REITs bought shares with a net worth of Rs 4,262 crore but sold them for Rs 2,261 crore the next day.
“This erratic trend is driven by uncertainty regarding the dollar index and US bond yields,” said VK Vijayakumar, chief investment strategist at Geojit Financial Services.
It is believed that the dollar and bond yields have peaked and when inflation starts to decline the Fed will be less hawkish than it is today. This will facilitate more capital flows to emerging markets and India is the best emerging market to invest in now, he added.