Why foreign investors have fallen in love with India all over again

Indian markets have been on a roll and are now close to their all-time high which were made on December 1, 2022, on a closing basis and an intra-day basis. These levels were 63,583.07 and 63,284.19 points on BSE Sensex and 18,887.60 points and 18,812.50 points on Nifty. The closing levels on Friday, May 26, were at 62,501.69 points and 18,499.35 points, respectively.

The difference on a closing basis is about 1,100 points or 1.73 per cent on BSE Sensex and about 400 points or 2.11 per cent on Nifty. These levels could get breached in the coming week or markets may once again fail to cross the all-time high.

Results season is almost over and Foreign Portfolio Investors (FPIs), who were aggressive sellers for the better part of 2022 right until August September, have turned buyers.

In the first two months of the current calendar year, they were sellers with January being over Rs 41,000 crore and February a smaller Rs 11,000 crore. This converted to a small buy of Rs 2,000 crore in March and about Rs 6,000 crore in April and literally taking off in May with purchases of more than Rs 37,000 crore.

What could have changed or what made the FPIs change their view? There are a few factors which have led to this change. Earlier when FPIs sold, our markets fell and vice versa.

Now one finds that the domestic institutions, fuelled by the SIPs from retail investors and their investments in mutual funds, are providing the wherewithal to them to face up to the brutal selling of FPIs. This ensures that markets swing less and react much less to serious selling.

Further, 2022 and part of the current financial year 2023 have witnessed unprecedented inflation and rising interest rates globally. India was no exception. The difference however is the fact that inflation in India is now within the comfort zone of its central bank RBI.

This also has a longer-term implication in interest rates having peaked in the country and in the near term we could see them declining, albeit gradually. This would make business in India more competitive going forward.

Further Indian business has faced up to the challenges of volatile raw material and logistic nightmare during Covid and post Covid quite well. The gradual shift of China+1 also helped India. As a result, services exports from the country zoomed and helped its foreign exchange situation as well.

With India being one of the few countries in the world to continue to grow against negative growth in many more, it became a favourite destination for FPIs to hedge their bets.

The government focus is on infrastructure and roads, bridges, railways are literally coming up overnight. A large country like India has seen distances and time shrink. This leads to better price for fresh produce, impetus to industry and ensuring timely shipment of goods locally and also for export.

Yet another big development is the fact that FPIs have started looking at emerging companies from the midcap space which have the technology and manufacturing edge compared to its global peers. The PLI or production linked incentive scheme across many sectors has made Indian industry much more competitive than ever before.

Markets because of various factors like Covid, global inflation and rising interest rates have done literally nothing over the last eight quarters. If one is to look at the BSE Sensex, it has been moving between 52,500 and 62,500 since March 21 till now.

Similar levels on the Nifty are 15,700 and 18,500. The net change compared to June 21 is 2,800 points on Nifty and 10,000 points on BSE Sensex. With valuations remaining subdued or unchanged, the Indian markets offer an opportunity to FPIs to make money and it is this opportunity that they seem to be encashing with both hands.