Summary of this article
FPIs have bought Rs 11,682 crore of Indian equities in July so far
Consumer services, metals and healthcare attracted the highest foreign inflows
Will the buying last? AI rotation and monsoon hold the key
Foreign portfolio investors (FPIs) returned as net buyers in the first half of July, extending their buying spree for the second fortnight. Consumer-facing and cyclical sectors attracted the highest inflows after months of sustained selling. The buying comes after four straight months of heavy outflows, largely triggered by the sharp rise in global risk aversion following the US-Iran conflict and the resulting surge in crude oil prices.
According to National Securities Depository (NSDL) data, FPIs invested a net Rs 11,682 crore in Indian equities till July 20. The turnaround comes after net selling of Rs 1,17,775 crore in March, Rs 60,847 crore in April, Rs 32,963 crore in May and Rs 49,340 crore in June.
Sector-wise data for the first half of July shows consumer services emerged as the biggest beneficiary of foreign buying, with FPIs investing Rs 7,361 crore between July 1 and July 15. Metals and mining followed with net inflows of Rs 5,993 crore, while healthcare attracted Rs 4,101 crore. Services saw buying worth Rs 2,405 crore, consumer durables received Rs 2,384 crore and realty attracted Rs 2,072 crore.
Financial services, one of the worst-hit sectors during the recent phase of FPI selling, continued to see a reversal in trend. Foreign investors bought shares worth Rs 1,975 crore in the first half of July, extending the Rs 14,634 crore worth of inflows seen in the second half of June. Construction materials, construction, oil, gas and consumable fuels, textiles, and utilities also witnessed net buying, though the inflows into these sectors remained relatively modest.
The buying, however, was not broad-based. FPIs continued to reduce exposure to automobile and auto components, where net selling stood at Rs 6,936 crore. Capital goods witnessed outflows of Rs 2,657 crore, followed by telecommunication at Rs 2,454 crore. Power, fast-moving consumer goods, media and chemicals also remained under selling pressure.
Turnaround In Global AI Rally
The turnaround in foreign flows also reflects a shift in global investment trends. After several months of chasing artificial intelligence (AI)-linked stocks in the US, Taiwan and South Korea, investors have started rotating into relatively stable markets. The correction in AI and semiconductor stocks overseas has made India more attractive, supported by improving macroeconomic conditions and expectations of better corporate earnings.
Korea's benchmark Kospi, one of the biggest beneficiaries of the global AI rally, has corrected nearly 26 per cent over the past month. Taiwan's Taiex has declined more than 7 per cent, while the Nasdaq has fallen over 2.5 per cent during the same period. Meanwhile, India's benchmark Nifty 50 has remained relatively resilient, posting a marginal gain despite heightened global uncertainty.
Are FPIs Here To Stay
Goldman Sachs, in its July 11 report India Strategy: Room To Rebound, said India's investment case has strengthened in recent weeks because of lower commodity prices, a stabilised currency, resilient domestic growth, healthy earnings expectations for the second quarter and the possibility of recovery in several domestic sectors.
The brokerage said foreign investors continue to hold a significant underweight position in Indian equities, leaving ample room for additional inflows if confidence improves. It expects foreign money to gradually rotate towards value-oriented sectors, particularly large-cap stocks and banks, as expectations of an economic recovery strengthen.
Christopher Wood of Jefferies, in his Greed and Fear report dated July 16, said, “For foreigners to return in size they either need to believe that the AI trade has peaked, which is why the recent rotation is interesting, or they need to see much lower valuations in India, which is only likely if there is suddenly a stampede out of domestic mutual funds. There remains no sign of that at present.”
Going ahead, whether the FPI inflows stay sustainable will depend on both global and domestic factors. While the rotation away from AI-driven trades and expectations of stronger corporate earnings have improved sentiment towards India, investors are also keeping a close watch on the monsoon. A prolonged rainfall deficit could weigh on rural demand, stoke inflationary pressures and cloud the country's growth outlook, potentially influencing the pace of foreign inflows in the coming months.
