Big Bang return of FPIs

Mumbai: After remaining heavy sellers in the domestic equity markets for consecutive four months ending January 2017, FPIs have returned with a bang making their biggest monthly purchases in last forty-nine months as a ‘dovish’ statement from the US Federal Reserve during its latest monetary policy meeting eased concern about repeated interest hikes in quick succession.

This according to the experts have led to emerging markets equity funds attracting fresh money from global investors.  

According to data available with NSDL, overseas investors lapped up domestic equities worth Rs 22,268 crore in March till date, which is much higher than their yearly investments in last two years.

In 2015, FPI investment in Indian equities stood at Rs 17,808 crore while it was Rs 20,568 crore in 2016.    

“There were fears about aggressive rate hikes by the US Federal Reserve in quick succession and its impact on emerging markets. However, the dovish comments from US Federal Reserve suggests that there wont be more than 2-3 hikes over the next one year as against an earlier expectation of 5-6 times a year,” said U.R. Bhat, MD, Dalton Capital Advisors.

The recent state assembly election results according to Mr Bhat provided further momentum to Indian equities. “We don’t have valuation comfort for sure. So the sustainability of the current rally looks little difficult,” he added.

“There was also a left out feeling among overseas investors as the rally in the domestic equity markets from their December lows was primarily driven by domestic investors,” added Ambareesh Baliga, senior research analyst.

During the four months ending January 2017, FPI’s offloaded domestic equities worth '31,903 crore following a host of both domestic as well as global factors.

While concerns regarding demonetisation-induced slowdown in domestic economic and corporate earnings growth made Indian equities less attractive, fear about further interest rate hike by the US Federal Reserve coupled with Donald Trump’s policy proposals promising higher growth prompted global investors to rework their investment strategies.

However, the trend seems to be changing at the moment. According to Emerging Portfolio Fund Research (EPGR) Global, which tracks investment flows in global markets, redemptions from US Equity Funds jumped to a 38-week high as investors again questioned whether Donald Trump’s administration has the necessary focus and political skills to get its economic agenda through Congress.

“Concerns that Donald Trump’s focus on wiretapping allegations and fake news is distracting his administration, thereby wasting what is normally the period when a new president’s legislative agenda stands the best chance of progressing, weighed on US equity markets and US Equity Funds,” EPFR said.