FPIs net buyers in July for the first time since early 2021

Foreign investors seem to have changed their positions at least in the near-term, as the Indian stock markets are not entirely out of the woods as macroeconomic and geopolitical risks continue.

The net buying of $4.6 billion in the current month was up to August 17, or whatever else they could do to explain it. This assumes significance as this is the first instance of foreign portfolio investors buying Indian stocks in a significant amount since the beginning of the year.

From October 2021, foreign investors were net sellers for nine consecutive months. There was a pause in selling FPIs ending July as net buyers last month, but only for a paltry $618 million.

The sudden reversal is interesting because it comes close to a nine month selling streak by FPIs that saw shares worth more than $33 billion sold between October 2021 and June 2022.

It was the longest selling streak by FPIs since the 2008 Global Financial Crisis when investors were net sellers for seven months starting May. The net selling in 2008 was much less than $9.71 billion when compared to the latest bout of selling.

The benchmark S&P BSE Sensex gained almost 8.6 per cent in July, and the index increased by 4.7 per cent in the current month until August 17 because of renewed interest by FPIs.

The July gains came on the back of three consecutive months of falls, with June alone accounting for a dip of 9.5 per cent.

In a recent interaction with Business Today, Siddhartha Khemka, Head Retail Research, Motilal Oswal Financial Services, said FPI selling might reverse by the end of the current financial year, as clarity would emerge on the full impact of inflation on corporate earnings.

H 2 FY 23 is the start of the festive season, which could bring back the demand and revive the economy. Inflation might peak out at that time, while Central Banks might get over with the aggressive rate hike cycle.

All these factors can lead to FII flows returning, said Khemka.

There is still a concern in the market that inflation and rising interest rate regime could affect domestic consumption story, even though FPIs may have turned net buyers for the time being and benchmark indices may well be staging a smart rally.

Market experts are still holding on to their cautious stance or a wait and watch approach to see how concerns about a possible global economic slowdown plays out in the months to come.